SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                   FORM 10-KSB

(Mark One)


/X/  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 1998
                          -----------------


/ /  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from          to
                               --------     ---------

                         Commission file number 1-13587

                         QUERYOBJECT SYSTEMS CORPORATION
--------------------------------------------------------------------------------

            (Exact Name of Registrant as Specified in its Charter)

            Delaware                                       94-3087939
    -------------------------------            -------------------------------

    (State or other jurisdiction of              (IRS Employer Identification
     incorporation or organization                          Number)


            60 Charles Lindbergh Boulevard, Uniondale, New York 11553
--------------------------------------------------------------------------------
            (Address of Principal Executive Offices)      (Zip Code)

       Registrant's telephone number, including area code: (516) 228-8500

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share

                  Indicate by check mark  whether the  Registrant  (1) has filed
all  reports  required  to be filed  by  Section  13 or 15(d) of the  Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter  period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X    No
                                                      ---    ----


<PAGE>

                  Check  if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-B contained in this form, and no disclosure
will be  contained,  to the best of the  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. X

                  State the issuer's  revenues for its most recent  fiscal year:
The issuer's revenues for the fiscal year ended December 31, 1998 were $928,505.

                  The  aggregate  market  value  of the  voting  stock  held  by
non-affiliates of the Registrant computed by reference to the price at which the
stock was sold on March 28, 1999 was approximately:  $5,670,000.  Solely for the
purposes of this  calculation,  shares  held by  directors  and  officers of the
Registrant  have  been  excluded.   Such  exclusion   should  not  be  deemed  a
determination  or an admission by the Registrant that such  individuals  are, in
fact, affiliates of the Registrant.

                  Indicate  the  number  of  shares  outstanding  of each of the
issuer's  classes of common stock, as of the latest  practicable  date: At March
15, 1999,  there were outstanding  6,068,485  shares of the Registrant's  Common
Stock, $.001 par value.

                       DOCUMENTS INCORPORATED BY REFERENCE

                  Certain   portions  of  the   Registrant's   definitive  proxy
statement to be filed not later than April 30, 1999 pursuant to  Regulation  14A
are  incorporated  by reference in Items 9 through 12 of Part III of this Annual
Report on Form 10-KSB.

                  Transitional Small Business Disclosure Format (check one):

                  Yes       No   X 
                      -----   -----


<PAGE>

                                     PART I


ITEM 1.           DESCRIPTION OF BUSINESS


COMPANY OVERVIEW

         QueryObject  Systems  Corporation (the "Company")  develops and markets
proprietary  business  intelligence  software  solutions  that  enable  business
managers  to make  strategic  decisions,  leveraging  existing  corporate  data.
Through  the  evolution  of  technology,  businesses  operating  in  transaction
intensive industries,  such as telecommunications,  healthcare and insurance and
financial  services,  have  dramatically  increased  their ability to gather and
store large amounts of data generated from various  sources.  Such data contains
information  that,  if extracted  effectively  and  efficiently,  can be used to
enhance strategic corporate  development.  While companies have invested heavily
in capturing data, they have only recently begun to focus significant  resources
on the  management and analysis of such data;  consequently,  the data gathering
and analysis industry is experiencing  significant growth. The Company developed
its products in response to the need by companies  to analyze  these  increasing
volumes of data.

         In the third quarter of 1996, the Company began the process of shifting
its focus from using its  proprietary  technologies  to  provide  contract  data
analysis services, to the sale and support of its proprietary products,  thereby
enabling  customers  to do their own  analysis.  The process  was  substantially
completed in 1998.  Through 1998, the Company has realized  limited sales of its
products  and in  September  1998,  implemented  a plan to  reduce  its  monthly
operating  costs,  which included the  termination of  approximately  20% of the
Company's employees.

         The Company was  incorporated  in Delaware in 1997 and is the successor
by merger to CrossZ International, Inc., a California corporation,  incorporated
in 1989. In May 1998,  the name of the Company was changed from CrossZ  Software
Corporation  to  QueryObject  Systems  Corporation  to reflect the change in the
Company's  focus.  Unless  otherwise  indicated,  references to the Company also
include its predecessor.

INDUSTRY BACKGROUND

         Data marts are component technologies in the "Business Intelligence" or
more broadly, the "Data Warehousing" market. International Data Corp. ("IDC"), a
leading technology  consulting/research  company, estimates that the size of the
data warehousing  software market will increase to over $5.0 billion by the year
2000, with an annual compound growth rate of approximately 30%. The stimulus for
this growth is the exceptional  returns on capital experienced by companies that
have invested in data warehousing and related technologies. IDC studied 62


                                       -1-

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companies that invested an average of $2.2 million each in data  warehousing and
found that the average return on investment after three years was 401%.

         There are generally  three  components to an  enterprise-wide  business
intelligence system:

         - Data warehouse: where the unprocessed corporate data is stored in one
place.  Data warehousing  involves the controlled,  periodic loading of selected
historical data from various databases into a central repository in a summarized
and  standardized  format that is made available to users on a read-only  basis.
This  approach  provides  users  with  better  access  to  critical  data in the
organization's  relational database management systems ("RDBMS"),  but users are
not generally  familiar  enough with  database  syntax to extract data from data
warehouses without assistance from information technology ("IT") personnel.

         - Data  mart:  subject-specific  subsets  of  the  data  warehouse.  An
advanced  form  of  data  mart  contains  pre-calculated  answers  stored  in  a
multidimensional data mart known as a data cube.

         - Data analysis:  accessing  information and discovering and extracting
hidden patterns or trends from databases and data marts.

         Despite  the  size  of this  market,  and the  strategic  value  of the
"business  intelligence"  available from corporate  data,  businesses  developed
their  information  systems  solely to support  transactional  data  processing,
collecting  and  storing  the data  necessary  to  facilitate  such  processing.
Therefore,   data  storage   methods   designed  in   contemplation   of  narrow
transactional goals are being burdened with the new goals of strategic analysis.
Such  systems  do not fully  address  the need to  transform  data  into  useful
information.

         In the business  intelligence  area,  RDBMS are most frequently used as
data  repositories,  both  for  historical  data as a "data  warehouse"  and for
analytical  data as a  "datamart."  RDBMS are tuned to optimize  support of high
volume on-line transaction  processing ("OLTP")  applications such as data entry
and do not support the extraction and analysis of that data.

LIMITATIONS OF TRADITIONAL ON-LINE ANALYTICAL PROCESSING PRODUCTS

         Although a data  warehouse  is useful,  because it contains  all of the
data that can be analyzed, its immense size makes business intelligence analysis
inefficient  and unwieldy.  Within any data  warehouse  there will be extraneous
data (data  unrelated to the goal of the analysis)  that must be  disregarded in
any specific or  particular  analyses.  For  example,  if a company is trying to
determine  the most  relevant  factors in  retaining  its  customers  for repeat
purchases,  certain  elements  of  each  customer's  data  profile  will  have a
relatively high correlative value, such as income,  gender or occupation,  while
other elements will have a relatively low correlative  value, such as first name
or social  security  number.  A data  warehouse  contains all the data elements,
however,  it does not contain the additional  information  necessary to identify
those data elements relevant to a business goal.


                                       -2-

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         The response to the  inefficiencies  of the data warehouse has been the
development of the data mart. However, traditional data mart technology is still
based on the relational  model employed in the data warehouse and often does not
present that data in a fully  transformed  form most suitable for  analytical as
opposed to storage purposes.

         The Company  believes  enterprises  are searching for ways to transcend
these limitations,  to develop data marts that more efficiently support Business
Intelligence   analytical  techniques,   in  less  time,  with  a  more  precise
correlation between data mart content and the user's business objectives. At the
same time,  such  product  must use  existing  hardware and systems and minimize
impact on critical IT resources.

         The  Company   believes  that  its   QueryObject   System  provides  an
enterprise-wide   solution  to  the  problems  of  first  generation  data  mart
technology limitations.

QUERYOBJECT(TM) SYSTEM

         QueryObject  System employs  advanced  mathematics  to create  compact,
portable and accurate  representations of data sets, called  QueryObjects,  from
the data repository. In real-world applications, a QueryObject System-based data
mart can be tens, even hundreds of times smaller than the source data warehouse,
thereby making terabyte-class  databases small enough to transport on a standard
laptop.  QueryObject System technology can reside on mainframe,  midrange (UNIX)
or  Windows  NT  systems.  In  October  1997,  the  Company  began to  implement
full-scale marketing of QueryObject System as a software product.  Previous uses
of the  QueryObject  technology  required  certain  consulting  services and was
promoted  selectively  through direct sales channels,  at several industry trade
shows, and to potential  business  partners.  The current release of QueryObject
System  has  reduced  consulting  requirements  and is  capable  of  running  on
additional UNIX operating systems and the Windows NT operating system.

         The Company  believes  that  QueryObject  System  offers the  following
advantages over conventional data marts:

         o Plug and Play with Raw Data:  QueryObject  System  allows the user to
extract virtually  unlimited amounts of raw data directly from existing OLTP and
other systems, without the need to aggregate and then summarize the data.

         o Fresher Data:  Performing a full scan on a data warehouse to create a
data mart is time intensive,  consumes CPU resources,  and renders the warehouse
virtually  inaccessible to users with other  purposes.  In fact, most businesses
find it difficult to perform more than one full scan on their data  warehouse in
a day and often require a week or more to create a data mart. QueryObject System
was  designed  specifically  for high  speed  data  mart  creation  without  the
management overhead and negative performance  implications  associated with data
warehouses and other  conventional data  repositories,  allowing users to create
dozens of data  marts in a single  day.  Moreover,  because  QueryObject  System
technology can reside on MVS, UNIX or Windows NT servers, the user can


                                       -3-

<PAGE>


create  the data mart on the system  that makes the most sense for the  business
and insulate  mission  critical  applications and databases from the performance
degradation normally associated with full database scans.

         o Lower Cost:  As a result of their  ability to load raw data  directly
into QueryObject System, users can reduce or eliminate  time-consuming work such
as extracting,  cleaning,  normalizing,  formatting and summarizing  data before
loading it into a data warehouse. In addition, large amounts of operational data
can be preserved for future analysis at far lower cost than a data warehouse.

         o Greater Scalability and Speed: The Company believes QueryObject based
data marts contain more data in less storage space than  traditional  data marts
such as Hyperion  Essbase and Oracle Express.  A single  QueryObject can contain
the  representation  of hundreds of millions of records,  tens of  thousands  of
values in each field or column and billions of potential query answers.  The use
of proprietary  algorithmic  equations  allows  QueryObject-based  data marts to
store more data in a fraction of the storage space needed by  conventional  data
marts. Even with data marts that measure in the hundreds of millions of records,
the retrieval can often be executed in seconds or less.

         o  Greater  Multi-User  Support:  QueryObjects  can  support  unlimited
numbers of concurrent  users since all possible  answers to all possible queries
are contained  therein,  and impose  virtually no degradation on processing,  in
contrast to  conventional  data marts that consume  large  amounts of processing
power in computing potential answers.

         o Greater Mobility:  When business intelligence was a function confined
to a small cadre of analysts and  specialists,  it was  acceptable  for business
intelligence  systems  to reside in a single,  central  location.  In  contrast,
because  QueryObjects  can reside on desktops,  laptops and Web  servers,  or be
distributed  over local area networks,  they allow  businesses to deploy complex
data marts to thousands of users in an enterprise,  using  existing  information
technology infrastructure.

THE QUERYOBJECT STRATEGY

         The  Company's   objective  is  to  establish  the  QueryObject  System
technology  as a  ubiquitous  data  mart  standard  for  data  analysis  in data
intensive  industries such as  telecommunications,  healthcare and insurance and
financial services. Key elements of the Company's strategy include:

         Establish Technology Leadership.  The Company has developed a number of
technologies  specifically  to meet the  scalability,  capacity,  usability  and
functionality requirements of data mart software. In particular, the Company has
developed a proprietary high performance mathematical algorithm suite to compute
and  represent  all possible  answers,  univariates,  uniques and  intermediates
across very large databases.  These answers are stored in highly compact formats
that do not require  significant  server memory or  processing  power to provide
instantaneous query response. The Company intends to continue to develop what it
believes  are  innovative  technologies  and  features to address  the  specific
business requirements of data marts in the areas of performance, scalability,


                                       -4-

<PAGE>

data integrity,  system administration and decision analysis  capabilities.  The
Company  intends to continue to invest in its technology in order to enhance its
existing data mart products.

         Develop  Strategic  Relationships.  To  accelerate  the adoption of the
QueryObject System as a standard platform business intelligence application, the
Company  has  begun to form  strategic  relationships  with  many  providers  of
business intelligence  software  applications,  tools and services.  The Company
believes  that its  strategic  relationships  with  hardware and other  software
vendors are a key part of its strategy to establish a leadership position in the
business  intelligence data delivery market. The Company has established license
agreements  and  VAR  ("value-added   resellers")   relationships  with  several
companies,  including Amdahl Corporation,  Hewlett-Packard  Company, and Siemens
Nixdorf  Information  Systems AG. In  addition,  the  Company  has  co-marketing
agreements with several companies  including Business Objects,  Brio Technology,
Inc., Computer Associates and Fujitsu Limited.

         Expand Open Systems Approach.  The Company seeks to maximize the market
for its products by designing them to adhere to industry standards, which allows
the sharing of data across  platforms  and  software  applications.  QueryObject
technology operates with a wide range of third-party  front-ends,  databases and
operating  systems  via an open  architecture  that  supports  Microsoft's  open
database  connectivity (ODBC) and object linking and embedding database (OLE/DB)
standards  and the Java Data Base  Connectivity  standard  (JDBC)  designed  for
Internet tools. The Company believes that its open systems approach represents a
competitive  advantage versus  competing  solutions that are more proprietary in
nature, and as such intends to continue to adhere to industry standards.

         Leverage Existing  Investments in Information  Technology.  The Company
believes that it has designed QueryObject System to take advantage of customers'
existing IT investments,  thereby  accelerating the acceptance of such software.
QueryObject  System is  designed to leverage  investments  in personal  computer
hardware and software and to integrate data from existing relational  databases,
legacy  repositories  and emerging data  warehouses.  The Company also leverages
third party-based consulting services and distribution capabilities to enable it
to focus on providing  industry  leading  business  intelligence  data  delivery
software.

         Target  Horizontal  Markets/New  Applications and Markets.  Because the
delivery of relevant data to business  intelligence  applications  is a critical
corporate  function in a wide variety of industries,  the Company  believes that
its  solutions  are  potentially  applicable  in a broad range of  markets.  The
Company  is  currently  targeting  customers  in  telecommunications,  financial
services and insurance and health care.

         Provide Superior Customer Service.  The Company believes that providing
superior  customer  service is critical  for  customer  success.  The  Company's
strategy is to deliver  technology  and  services  that enable its  customers to
implement  quickly  and  cost  effectively   integrated  data  mining/data  mart
applications.  The Company provides its customers with a comprehensive  array of
services, including software updates, documentation updates, product maintenance
and emergency response. The


                                       -5-

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Company  intends to maintain  its focus and to continue to invest in service and
support to extend its customer service advantage.

         Expand Sales and Marketing Capabilities.  The Company intends to expand
its sales and marketing capabilities, both domestically and internationally,  by
increasing the size of its direct sales  organization and developing an indirect
channel of distributors such as original  equipment  manufacturers  ("OEMs") and
VARs.  During 1997,  the Company opened an office in the United Kingdom to enter
the European marketplace.

PRODUCTS

         The Company's  QueryObject  System is a highly  scaleable and efficient
solution for providing business intelligence applications and users with all the
relevant information from corporate data.

         QueryObject   System  is  a  powerful  OLAP  data  mart  solution  that
transforms   mainframe   size   databases   into  highly  compact  and  portable
mathematical  representations  that fit onto standard PC laptops.  The following
table lists the QueryObject  System product line by configuration  and operating
system:


        Product                            Configuration        Operating System
QueryObject DBA                                Client             Win 95-98/NT
QueryObject Designer                           Client             Win 95-98/NT
QueryObject Engine                             Server             MVS, UNIX, NT
QueryObject Server Personal Edition            Client             Win 95-98/NT
QueryObject Server, Enterprise Edition         Server             UNIX, NT
QueryObject Server, Web Edition                Server             UNIX, NT


         QueryObject DBA (Data Base Administrator)  provides administrators in a
Windows  based  environment  with a tool  to  manage  the  process  of  reading,
synchronizing and staging source, atomic level data in QueryObject System. Using
standard drag and drop actions,  data  administrators  can map their source data
into the QueryObject System repository,  the QueryObject Ready File. The Company
believes that  QueryObject  DBA users benefit from working with a graphical tool
that understands the complexities of both legacy and warehouse data.

         QueryObject  Designer  enables  end users to design and build their own
QueryObjects.   Working  in  a  familiar  Windows   environment,   users  create
QueryObjects by selecting a subset of the fields from the QueryObject Ready file
using a drag and drop interface. The Company believes that


                                       -6-

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the end user benefits from an environment that requires no programming,  gives a
visual  representation  of the  QueryObject,  and is able to process hundreds of
millions of data records.

         QueryObject  Engine is  designed to (i) work with large  quantities  of
data,  (ii) read a variety of data  formats  and (iii)  process the data into an
analytical repository,  and then into multiple  QueryObjects.  From this staging
area,  multiple  QueryObjects are produced in an efficient manner on the server.
The Company  believes that users are protected  from the server  environment  by
using  QueryObject  DBA and QueryObject  Designer,  yet they gain the power of a
server behind their business  intelligence system.  QueryObject Engine runs on a
wide variety of server  platforms from MVS to UNIX to Windows/NT.  The resulting
QueryObject can be moved to a user's individual  personal computer or managed by
the QueryObject Server.

         Unlike  other data mart systems  that  require  significant  amounts of
preprocessing and data aggregation,  QueryObject Engine is able to perform these
tasks automatically for each QueryObject.  The Company believes that the ability
to store and build a  QueryObject  from  detail  level  data  allows the user to
explore his data without the constraints of pre-aggregated  data sets that might
not  represent  the data in the manner that the user  requires  for a particular
business challenge.

         QueryObject   Server  allows  the   enterprise  to  locate  and  manage
QueryObjects on a centralized server infrastructure. QueryObject Server provides
enhanced  security and performance  across multiple  QueryObjects over corporate
internets (Web Edition) or corporate LANs (Enterprise  Edition).  Users may also
download  QueryObjects  to  their  individual  personal  computers  (QueryObject
Server, Personal Edition).

         QueryObject  contains ODBC,  JDBC and OLE/DB  interfaces that allow end
users to work  within a  familiar  environment  of  industry  standard  business
intelligence data navigation and display tools.

SALES AND MARKETING

         The Company  markets and sells  QueryObject  System  through its direct
sales  organization  and intends to increase  the  proportion  of sales  through
indirect  channel  parties  such as VARs and  OEMs.  The  direct  sales  process
involves the generation of sales leads through direct mail and  telemarketing or
requests for proposal from  prospects.  The Company's field sales force conducts
multiple  presentations  and  demonstrations  of its products to management  and
users at the  customer  site as part of the direct  sales  effort.  Sales cycles
generally range from three months to six months or longer.

         The Company's  sales,  marketing and related  customer support services
organization  consisted of 15 full time  employees as of December 31, 1998.  The
sales staff is based at the Company's corporate  headquarters in Uniondale,  New
York and its European  branch  office in London,  England.  To support its sales
force,  the Company engages in direct mail  solicitations,  telesales and public
relations and presents its products at trade shows.

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<PAGE>

         The Company  employs  sales and  technical  personnel who are teamed to
support a designated  account territory within a specified  vertical market. The
team is responsible for creating and maintaining local partner relationships and
resolving channel conflicts. To ensure the appropriate level of channel support,
the direct sales force is compensated  for sales that are made through  indirect
channel  partners  and those that are made  directly  to end  users.  A separate
partnering and business  development function is responsible for the recruitment
and maintenance of OEMs and national and global VARs and business partners.

         The Company believes that a high level of customer support is important
to the successful  marketing and sale of  QueryObject  System.  Maintenance  and
support  contracts,  which are typically for twelve months, are offered with the
initial  license,  and  may be  renewed  annually  at a cost  equal  to a  fixed
percentage  of the total  license fee paid.  Telephone  hotline  support will be
complemented  by an  internet  site that  provides  an  interactive  forum and a
repository for technical tips and skills.

RESEARCH AND DEVELOPMENT

         The Company  believes that its future success will depend in large part
on its ability to maintain and enhance its  leadership in business  intelligence
software  technology  and develop new products  that meet an expanding  range of
customer  requirements.  The Company's research and development  organization is
divided into teams  consisting of  development  engineers and quality  assurance
engineers.  The market  addressed  by the Company is very  sensitive  to product
quality and therefore the process is aimed at continuous  improvement of product
quality.   The  product   definition  is  based  upon  a  consolidation  of  the
requirements   from  existing   customers,   from  technical  support  and  from
engineering.  These are prioritized by the Company's  management to fit business
priorities and to meet the Company's vision.

         The  market  for the  Company's  software  is  characterized  by  rapid
technological  change,  frequent new product introductions and evolving industry
standards.  The  introduction  of products  embodying new  technologies  and the
emergence of new industry  standards can render existing  products  obsolete and
unmarketable. Therefore, the life cycles of the Company's products are difficult
to  estimate.  The  Company's  future  success  will  depend upon its ability to
enhance on a timely  basis its  current  products,  develop  and  introduce  new
products that keep pace with  technological  developments and emerging  industry
standards and address the increasingly sophisticated needs of its customers.

         As of  December  31,  1998,  the  Company's  research  and  development
organization  consisted of 16 full time  employees.  The Company  also  utilizes
independent contractors located in Europe for its development activities. During
1998 and 1997, research and development  expenses were $2,305,678 and $2,523,127
or 248% and 249% of total revenues,  respectively.  The Company will continue to
commit substantial resources to research and development in the future.


                                       -8-

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PROPRIETARY RIGHTS

         The  Company  relies  primarily  on  a  combination  of  copyright  and
trademark  laws,  trade  secrets,  confidentiality  procedures  and  contractual
provisions  to protect its  proprietary  rights.  The Company also believes that
factors such as the  technological  and creative  skills of its  personnel,  new
product  developments,  frequent  product  enhancements,  name  recognition  and
reliable  product  maintenance are essential in  establishing  and maintaining a
technology  leadership  position.  The Company  seeks to protect  its  software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.

         The Company currently has several registered  trademarks,  and may seek
additional  legal  protection for its products and trade names.  The Company has
invested  substantial  resources in  registering  the  trademarks and developing
branded  products and product  lines.  There can be no assurance  that the steps
taken by the  Company to protect  these  intellectual  property  assets  will be
sufficient  to deter  misappropriation.  Failure to protect  these  intellectual
property assets could have a material  adverse effect on the Company's  business
operations.  Moreover, although the Company is not aware of any lawsuit alleging
the Company's  infringement of  intellectual  property  rights,  there can be no
assurance  that any such  lawsuit  will not be filed  against the Company in the
future or, if such lawsuit is filed, that the Company would ultimately prevail.

         The Company  currently  has no United States  patents or  corresponding
patent applications  pending elsewhere.  Furthermore,  there can be no assurance
that others will not  develop  technologies  that are similar or superior to the
Company's  technology  or design  around  any  patents  that may be owned in the
future by the Company.  Despite the Company's efforts to protect its proprietary
rights,  unauthorized  parties may attempt to copy aspects of its products or to
obtain and use information that it regards as proprietary. Policing unauthorized
use of the Company's  products is difficult,  and while the Company is unable to
determine the extent to which piracy of its software  products exists,  software
piracy can be expected to be a persistent problem. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights as fully as do
the laws of the United  States.  There can be no  assurance  that the  Company's
means of protecting its  proprietary  rights in the United States or abroad will
be  adequate  or  that  competitors  will  not  independently   develop  similar
technology.  The Company has entered into source code escrow  agreements  with a
limited number of its customers and VARs requiring  release of source code. Such
agreements provide that such parties will have a limited, non-exclusive right to
use such code in the event that there is a bankruptcy  proceeding  by or against
the  Company,  if the Company  ceases to do business or if the Company  fails to
meet its contractual obligations.  The provision of source code may increase the
likelihood of misappropriation by third parties.

         The Company is not aware that it is infringing any  proprietary  rights
of third parties.  There can be no assurance,  however,  that third parties will
not claim  infringement  by the Company  with respect to  QueryObject  System or
enhancements  thereto. The Company expects that software product developers will
increasingly be subject to infringement claims as the number of products and


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competitors in the Company's  industry  segment grows and the  functionality  of
products in different  industry  segments  overlaps.  Any such  claims,  with or
without merit,  could be time consuming to defend,  result in costly litigation,
divert management's  attention and resources,  cause product shipment delays and
require the Company to enter into royalty or licensing agreements.  Such royalty
or licensing agreements,  if required,  may not be available on terms acceptable
to the  Company,  if at all.  In the  event of a  successful  claim  of  product
infringement  against the Company  and  failure or  inability  of the Company to
license the infringed or similar technology,  the Company's business,  operating
results and financial condition could be materially adversely affected.

COMPETITION

         The market in which the  Company  competes  is  intensely  competitive,
highly fragmented and characterized by rapidly changing technology and a lack of
standards.  The Company's current and prospective competitors offer a variety of
data mining and multidimensional data mart software solutions and generally fall
within five  categories:  (i) vendors of relational  database  products sold for
analytical  (data  warehouse and data mart)  purposes such as Oracle,  Informix,
Sybase, and Microsoft;  (ii) vendors of  multidimensional  database and analysis
software such as Oracle  (Express),  Hyperion  (Essbase) and Microsoft  (Plato);
(iii) vendors of OLAP/relational database software such as Informix (Red Brick),
Information Advantage (Decision Suite) and Holistic Systems (Holos); (iv)vendors
of  query  excelleration  products  such as  Nucleus  (Sand  Technology)  and IQ
(Sybase);and  (v) vendors of vertical  software  applications  for budgeting and
financial  consolidation,  such as Hyperion Software  Corporation  (Hyperion and
FYPlan) and  consulting  vendors such as Arthur  Andersen and Deloitte & Touche,
who focus on customer applications in the telecommunications, banking, insurance
and retail industries.

         The Company  has  experienced  and  expects to  continue to  experience
increased competition from current and potential competitors,  many of whom have
significantly greater financial,  technical,  marketing and other resources than
the  Company.  Such  competitors  may be able to respond  more quickly to new or
emerging  technologies  and changes in customer  requirements  or devote greater
resources to the  development,  promotion  and sales of their  products than the
Company.  Also, certain current and potential  competitors may have greater name
recognition  or more extensive  customer bases that could be leveraged,  thereby
gaining market share to the Company's detriment.  The Company expects additional
competition  as other  established  and emerging  companies  enter into the OLAP
software  market and new products and  technologies  are  introduced.  Increased
competition  could result in price  reductions,  fewer customer orders,  reduced
gross margins and loss of market share, any of which would materially  adversely
affect the Company's business, operating results and financial condition.

         Current and potential  competitors  may make strategic  acquisitions or
establish  cooperative  relationships  among  themselves or with third  parties,
thereby  increasing  the  ability of their  products to address the needs of the
Company's  prospective  customers.  The  Company's  current  or future  indirect
channel  partners  may  establish  cooperative  relationships  with  current  or
potential competitors of the Company,  thereby limiting the Company's ability to
sell its products through


                                      -10-

<PAGE>

particular  distribution  channels.   Accordingly,   it  is  possible  that  new
competitors  or  alliances  among  current  and new  competitors  may emerge and
rapidly  gain  significant  market  share.  Such  competition  could  materially
adversely  affect the Company's  ability to obtain new contracts and maintenance
and support  renewals for existing  contracts on terms favorable to the Company.
Further,  competitive  pressures  may require the Company to reduce the price of
QueryObject  System,  which  would  materially  adversely  affect the  Company's
business,  operating results and financial condition.  There can be no assurance
that the Company will be able to compete successfully against current and future
competitors,  and the failure to do so would have a material adverse effect upon
its business, operating results and financial condition.

         The Company competes on the basis of certain factors, including product
quality, first-to-market product capabilities,  product performance, ease of use
and customer support.  The Company believes it presently competes favorably with
respect  to each of  these  factors.  However,  the  Company's  market  is still
evolving and there can be no assurance  that the Company will be able to compete
successfully  against  current and future  competitors  and the failure to do so
successfully  will  have a  material  adverse  affect  upon  the  its  business,
operating results and financial condition.

EMPLOYEES

         As of  December  31,  1998,  the  Company  had a total of 36 full  time
employees,  including 16 in research and development,  15 in sales and marketing
and related  customer  support  services  and 5 in  administration.  None of the
Company's employees is represented by a collective bargaining agreement, nor has
the Company  experienced any work stoppage.  The Company considers its relations
with its employees to be good.

         The Company's future operating  results depend in significant part upon
the continued service of its key technical and senior management personnel.  The
Company's  future success also depends on its continuing  ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will retain
its key  managerial  or technical  personnel  or attract  such  personnel in the
future.  The  Company  has at times  experienced  and  continues  to  experience
difficulty in recruiting  qualified personnel and there can be no assurance that
the Company will not experience such  difficulties  in the future.  The Company,
either directly or through personnel search firms,  actively recruits  qualified
research  and  development,  financial  and sales  personnel.  If the Company is
unable to hire and retain  qualified  personnel  in the future,  such  inability
could have a material  adverse  effect on its  business,  operating  results and
financial condition.


                                      -11-

<PAGE>

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

         The Company operates in a rapidly changing  environment that involves a
number of risks, some of which are beyond the Company's  control.  The following
discussion highlights the most material of the risks.

         NEGATIVE WORKING CAPITAL; NEED FOR ADDITIONAL FUNDING

         At December 31, 1998, we had negative  working capital of $391,095.  We
have had a limited  operating  history as a software product  company,  have not
made  significant  sales of our  products  and our  revenues  are  difficult  to
predict.

         We sold  securities in private  placements in October and November 1998
so that we could continue  operations.  In the private  placements,  we received
conditional   commitments  to  purchase   $4,500,000  of  units   consisting  of
convertible  preferred  stock and warrants to purchase  common  stock,  of which
payment for all of the units had been made as of February  1999. We received net
proceeds of  approximately  $3,995,000  from such private  placements  (of which
$1,395,600 was received subsequent to December 31, 1998). Subsequent to December
31, 1998,  we also  received  proceeds of $341,250 from the exercise of warrants
granted in such  private  placements.  However,  given our  continued  operating
losses, we will need additional  financing to continue  operations.  Our current
projections  indicate that our current cash and cash equivalent position will be
insufficient  to satisfy our  liquidity  requirements.  As of March 19, 1999, we
have  no  commitments,   agreements  or  understandings   regarding   additional
financings and we may be unable to obtain additional financing.

ACCUMULATED  DEFICIT;  HISTORICAL AND PROJECTED FUTURE OPERATING  LOSSES;  GOING
CONCERN QUALIFICATION IN INDEPENDENT ACCOUNTANTS' REPORT

         At December 31, 1998, our accumulated deficit was $35,412,456.  For the
fiscal  years ended  December  31,  1998,  and 1997,  we incurred  net losses of
$7,294,032 and  $10,563,484,  respectively.  We have incurred a net loss in each
year of our existence,  and have financed our operations primarily through sales
of equity and debt securities.  Our expense levels are high and our revenues are
difficult  to predict.  The  independent  accountants'  report on our  financial
statements for the year ended December 31, 1998 states that our recurring losses
from operations,  our deficiencies in working capital and stockholders'  equity,
and negative cash flow from operating  activities raise  substantial doubt about
our ability to continue as a going concern.

         We expect to incur net losses for the foreseeable  future. We may never
achieve or sustain  significant  revenues or  profitability  on a  quarterly  or
annual  basis in the future.  Our future  operating  results will depend on many
factors, including:

         o        product demand

         o        product and price competition in our industry


                                      -12-

<PAGE>


         o        our  success  in   expanding   our  direct   sales  force  and
                  establishing indirect channel partners

         o        our ability to develop and market products and control costs

         o        the  percentage  of our revenues that is derived from indirect
                  channel partners


LIMITED OPERATING HISTORY; LACK OF SUBSTANTIAL REVENUE

         We have a limited  operating  history as a software product company and
have made only limited  sales of our products.  Our total  revenues for the year
ended  December 31, 1998 and 1997 were  $928,505 and  $1,012,159,  respectively.
Prior to 1997,  our revenues were derived  primarily from contract data analysis
services, which we no longer provide.

DEPENDENCE UPON QUERYOJECT  SYSTEM;  UNCERTAIN MARKET  ACCEPTANCE OF QUERYOBJECT
SYSTEM

         Substantially  all of our  revenues  for  the  foreseeable  future  are
expected to be derived from sales of QueryObject System. Between January 1, 1995
and December 31, 1998, we had software  product revenue from only 15 QueryObject
System  installations,  including those sold pursuant to reseller agreements for
the  resellers'  own use. We only  recently  commenced an  integrated  marketing
effort for our products.  Our future financial  performance will depend upon the
successful  introduction and customer  acceptance of QueryObject  System and the
development of new and enhanced  versions of the product.  If we fail to achieve
broad market acceptance of QueryObject  System, it would have a material adverse
effect on our business, operating results and financial condition.

NASDAQ DELISTING; POTENTIALLY LIMITED TRADING MARKET

         Our common stock is listed on the Nasdaq SmallCap Market and the Boston
Stock Exchange.  To remain eligible for listing on the Nasdaq SmallCap Market we
must comply with the following:

         o        our common stock must have a minimum bid price of $1.00;

         o        we must have minimum  tangible net assets of  $2,000,000  or a
                  market capitalization of $35,000,000 or net income of $500,000
                  in two of the three prior years; and

         o        we must have a public float of at least 500,000  shares with a
                  market value of at least $1,000,000; at least 300 stockholders
                  must hold our common  stock;  and at least two  market  makers
                  must make a market in it.

         In  December  1998 Nasdaq  notified  us that our common  stock would be
delisted  pending a hearing.  The hearing was held on February 19,  1999.  As of
March 30, 1999, our common stock


                                      -13-

<PAGE>



continued  to be listed on Nasdaq.  However,  Nasdaq has not advised us that our
common  stock will  continue to be traded on Nasdaq on a long-term  basis and we
believe that, absent additional financing, our common stock will be delisted and
that our common stock may be delisted  even if we obtain  additional  financing.
The delisting could occur at any time.

         If our common stock is delisted  from Nasdaq,  we believe the delisting
will be based on,  among other  things,  reservations  that Nasdaq has about our
ability  to  regain  and  sustain   compliance   with  its  net  tangible  asset
requirements.  As of December  31, 1998,  we had a deficiency  of $14,126 in net
tangible  assets.  Subsequent  to December 31, 1998, we received net proceeds of
$1,395,600  from the October and November 1998 private  placements  and $341,250
from the exercise of warrants granted in such private placements.  Due to actual
and  anticipated  losses  subsequent  to December 31, 1998,  however,  we do not
expect to be able to maintain for any  sustained  period at least  $2,000,000 in
net tangible assets without additional financing.  Such additional financing may
be unavailable to us on acceptable terms or at all. As of March 30, 1999, we had
no commitments,  understandings  or arrangements  with respect to any additional
financing.

         If our common  stock is delisted from Nasdaq,  trading if any,  therein
would be conducted on the OTC Bulletin Board and the Boston Stock Exchange.  The
Boston Stock Exchange will delist our common stock if we have less than $500,000
in net tangible assets. We will not be able to maintain at least $500,000 in net
tangible assets after March 31, 1999 without additional financing. If our common
stock is delisted  from Nasdaq and the Boston Stock  Exchange,  the common stock
could be  considered a penny stock.  SEC  regulations  generally  define a penny
stock to be an equity  security  that is not  listed  on  Nasdaq  or a  national
securities  exchange  and that has a market  price of less than $5.00 per share,
subject  to  certain  exceptions.  The  regulations  of the  SEC  would  require
broker-dealers  to deliver to a purchaser of common stock a disclosure  schedule
explaining  the penny stock  market and the risks  associated  with it.  Various
sales practice  requirements are also imposed on  broker-dealers  who sell penny
stocks to persons  other than  established  customers and  accredited  investors
(generally institutions). In addition,  broker-dealers must provide the customer
with current bid and offer  quotations for the penny stock,  the compensation of
the  broker-dealer  and its  salesperson in the  transaction and monthly account
statements  showing the market value of each penny stock held in the  customer's
account.  If the  common  stock is  traded  only on the OTC  Bulletin  Board and
becomes  subject to the  regulations  applicable to penny stocks,  investors may
find it more  difficult to obtain timely and accurate  quotes and execute trades
in the common stock.

USE OF INDIRECT CHANNEL PARTNERS TO INCREASE SALES

         As part of our sales and marketing  efforts,  we are seeking to develop
strategic  relationships  with  indirect  channel  partners,  such  as  original
equipment manufacturers and value-added resellers, to increase the number of our
customers.  We  currently  are  investing,  and  intend to  continue  to invest,
significant  resources  to develop  indirect  channel  partners.  Our results of
operations  will be  adversely  affected  if we are unable to  attract  indirect
channel partners to market our products  effectively and provide timely and cost
effective customer support and service. If we successfully sell products through
these sales channels, the lower unit prices we expect to receive for such sales


                                      -14-

<PAGE>


will result in our gross margins being lower than if we had sold those  products
through our direct sales force.

NEED TO ENHANCE  EXISTING  PRODUCTS,  DEVELOP  NEW  PRODUCTS  AND ADAPT TO RAPID
TECHNOLOGICAL CHANGE

         The market for our  software is  characterized  by rapid  technological
change, frequent new product introductions and evolving industry standards.  The
introduction  of products  embodying new  technologies  and the emergence of new
industry  standards can render existing products  obsolete and unmarketable.  We
cannot easily estimate the life cycles of our products.  Our future success will
depend upon our ability to:

         o        enhance existing products

         o        develop  and  introduce  new  products  that  keep  pace  with
                  technological developments and emerging industry standards

         o        address the increasingly sophisticated needs of customers

We may be unable to accomplish  these tasks.  Any delays in the  commencement of
commercial  shipments  of new products and  enhancements  could cause  potential
customers  to delay their  decision to purchase our products or to choose to not
purchase  our  products,  which  would  result in  delays in or loss of  product
revenues.  Such  delays in or loss of  product  revenues  would  have a material
adverse effect on our operating results and financial condition.

DEPENDENCE ON SIGNIFICANT CUSTOMERS

         For the fiscal year ended December 31, 1997, one customer accounted for
65%, and for the fiscal year ended December 31, 1998,  four customers  accounted
for 80%, of our total  revenues.  We are unsure if we will  realize  significant
future  revenues  from  any of  these  customers.  We also  expect  that for the
foreseeable  future a  relatively  small  number of  customers  and value  added
resellers will account for a significant percentage of our revenues. The loss of
any such customer would have a material adverse effect on our operating  results
and financial condition.

COMPETITION

         The market for our  products is  intensely  competitive  and subject to
rapid  technological  change.  Our current and prospective  competitors  offer a
variety of data mining and  multidimensional  data mart  software  solutions and
generally  fall  within five  categories:  (i)  vendors of  relational  database
products  sold for  analytical  (data  warehouse and data mart)  purposes;  (ii)
vendors of  multidimensional  database and analysis  software;  (iii) vendors of
OLAP/relational database software; (iv) vendors of query excelleration products:
and (v) vendors of vertical  software  applications  for budgeting and financial
consultation. Our competitors have:


                                      -15-

<PAGE>



         o        longer operating histories

         o        significantly  greater  financial,   technical  and  marketing
                  resources

         o        greater name recognition

         o        a larger installed base of customers and products

         o        well-established  relationships with our current and potential
                  customers

         o        extensive knowledge of the relational database industry

Our competitors may also be able to offer an integrated hardware and/or software
product that could be more  attractive to potential  customers.  Our competitors
may respond more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, promotion and sale
of their  products.  We also expect that software  industry  consolidations  may
create more  formidable  competitors,  resulting in price  reductions that would
reduce  gross  margins and erode any market  share we may  attain,  any of which
could materially adversely affect our business,  operating results and financial
condition.

DEPENDENCE UPON KEY PERSONNEL;  NEED TO INCREASE SALES,  MARKETING,  DEVELOPMENT
AND TECHNICAL PERSONNEL

         Our future  performance  depends in significant part upon the continued
service of key technical, sales and senior management personnel. The loss of the
services of one or more of our key employees,  in particular,  Robert  Thompson,
our  President  and  Chief  Executive  Officer,  or Daniel  M.  Pess,  our Chief
Operating and Financial  Officer,  could have a material  adverse  effect on our
business,  operating  results and  financial  condition.  We have an  employment
agreement  with Mr.  Thompson  that expires in October  1999,  and an employment
agreement  with Mr. Pess that  expires in May 1999.  We are unsure if we will be
able to agree with either of Messrs. Thompson or Pess on the terms of extensions
to their employment agreements prior to the expiration of these agreements.

         Our future success also depends on our  continuing  ability to attract,
train and retain highly qualified technical,  sales, marketing,  development and
managerial  personnel.  Competition for such personnel is intense, and we may be
unable to retain key technical,  sales,  development and managerial employees or
attract,   assimilate  or  retain  other  highly  qualified  technical,   sales,
development  and  managerial  personnel in the future.  If we are unable to hire
such personnel on a timely basis, our business,  operating results and financial
condition could be materially adversely affected.


                                      -16-

<PAGE>

LACK OF PROPRIETARY TECHNOLOGY PROTECTION; RISKS OF INFRINGEMENT

         We rely primarily on a combination  of trade  secrets,  confidentiality
agreements and contractual provisions to protect our proprietary technology.  We
license  rather  than sell our  software  and  require  licensees  to enter into
license agreements that impose certain  restrictions on their ability to utilize
the software.  In addition,  we seek to avoid  disclosure of our trade  secrets,
including  but not  limited  to  requiring  those  persons  with  access  to our
proprietary  information to execute  confidentiality  agreements and restricting
access to our source code. These steps afford only limited  protection.  We have
no patents or patent  applications  pending.  Despite our efforts to protect our
proprietary  rights,  unauthorized  parties may  attempt to copy  aspects of our
products or obtain and use information  that we regard as proprietary.  Policing
unauthorized  use of our  products  may be  difficult  and costly,  and software
piracy may become a persistent  problem.  In addition,  the laws of some foreign
countries do not protect our proprietary  rights to as great an extent as do the
laws of the  United  States.  We are  unable  to  predict  whether  our means of
protecting our proprietary  rights will be adequate or whether  competitors will
independently develop the same technology.

         From time to time, third parties may assert patent, copyright and other
intellectual  property claims against us. If we are unable to license  protected
technology  that  may be used in our  products,  we  could  be  prohibited  from
manufacturing and marketing such products. We also could incur substantial costs
to redesign our products,  to defend any legal action taken against us or to pay
damages to any infringed  party.  Litigation,  which could result in substantial
cost to and  diversion of our  resources,  may be necessary to enforce our other
intellectual property rights or to defend ourselves against claimed infringement
of the rights of others.

POTENTIAL FLUCTUATIONS IN PERIODIC RESULTS

         Our  revenues may vary  significantly  from period to period due to the
discretionary nature of business  intelligence data delivery software purchases,
and will be  difficult  to  predict.  Sales  prices of our  products  range from
$50,000 to over $275,000. As a result, the timing of the receipt and shipment of
a single order can  significantly  impact our revenues and results of operations
for a particular period. We anticipate that product revenues in any quarter will
be substantially  dependent on orders booked and shipped in that quarter, and we
are  unable to predict  revenues  for any future  quarter  with any  significant
degree of certainty.

RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY

         Any new products we develop would be subject to  significant  technical
risks. Our software  products are complex and may contain  undetected  errors or
failures when we first  introduce  them or when we release new versions of them.
Although we have not experienced  material  adverse  effects  resulting from any
errors to date,  our products  could  contain  errors.  If our products  contain
errors,  we could experience a loss of or delay in market  acceptance.  While we
have not experienced product liability claims to date, our product licensing and
support may entail the risk of such claims.


                                      -17-

<PAGE>

A significant  product defect or a successful  product  liability  claim brought
against us could  have a  material  adverse  effect on our  business,  operating
results and financial condition.

INTERNATIONAL OPERATIONS

         Our international  sales in 1998 were approximately  $158,000 or 17% of
our total revenue. We intend to expand our international operations and to enter
additional  international  markets,  which will require  significant  management
attention  and  financial  resources  and could  adversely  affect our business,
operating  results  or  financial  condition.   To  expand  international  sales
successfully,  we must establish additional foreign operations,  hire additional
personnel and recruit additional international resellers and distributors. If we
are unable to do so in a timely  manner,  our growth,  if any, in  international
sales  will be  limited,  and our  business,  operating  results  and  financial
condition  could  be  materially  adversely  affected.  We  anticipate  that our
international sales, if any, will be denominated in U.S. dollars. An increase in
the value of the U.S.  dollar  relative  to  foreign  currencies  could make our
products more expensive and,  therefore,  potentially  less competitive in those
markets.   Additional  risks  inherent  in  our  future  international  business
activities generally include:

         o        unexpected changes in regulatory requirements

         o        tariffs and other trade barriers

         o        costs of localizing products for foreign countries

         o        longer accounts receivable payment cycles

POSSIBLE VOLATILITY OF SECURITIES PRICES

         The market price of our common  stock has in the past been,  and may in
the future continue to be, volatile.  For instance,  between January 1, 1998 and
March 19, 1999,  the closing  price of our common stock has ranged  between $.50
and $5.50.  The  volatility  of the market price of our common stock may further
increase if our common  stock is delisted  from the Nasdaq  SmallCap  Market.  A
variety of events may cause the market  price of our common  stock to  fluctuate
significantly, including:

         o        quarter to quarter variations in operating results

         o        adverse news announcements

         o        the introduction of new products

         o        market conditions in the industry



                                      -18-

<PAGE>

         In  addition,   the  stock  market  in  recent  years  has  experienced
significant price and volume  fluctuations  that have particularly  affected the
market prices of equity  securities of many  companies that service the software
industry and that often have been unrelated to the operating performance of such
companies.  These  market  fluctuations  may  adversely  affect the price of our
common stock.

ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS

         Our Board of Directors has the authority, without further action by the
stockholders,  to issue 9,000 shares of  preferred  stock on such terms and with
such  rights,  preferences  and  designations,   including,  without  limitation
restricting  dividends on our common stock,  dilution of the voting power of our
common stock and impairing the  liquidation  rights of the holders of our common
stock, as the Board may determine without any vote of the stockholders. Issuance
of such preferred stock, depending upon the rights, preferences and designations
thereof may have the effect of delaying, deterring or preventing a change in our
control. In addition, certain "anti-takeover" provisions of the Delaware General
Corporation   Law,  among  other  things,   may  restrict  the  ability  of  our
stockholders to authorize a merger, business combination or change of control.

NO DIVIDENDS

         We have never paid cash  dividends  on our common  stock.  We expect to
incur net losses for the foreseeable future.

OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE PREFERRED STOCK

         As of  March  15,  1999 we have  outstanding  options  to  purchase  an
aggregate of 5,361,037 shares of our common stock at a weighted average exercise
price of $1.50 per share  (including  options to  purchase  2,786,037  shares at
exercise  prices of between  $.94 and $5.00 per share  which are  subject to the
approval of our  stockholders  of a proposal to an increase the number of shares
reserved for issuance under our stock option plan) and  outstanding  warrants to
purchase an aggregate of 6,749,382  shares of common stock at a weighted average
exercise price of $1.57 per share.  As a result of the October and November 1998
private  placements,  we also have outstanding  shares of convertible  preferred
stock that are convertible into an aggregate of 9,556,400 shares of common stock
and outstanding  warrants to purchase an aggregate of 5,454,625 shares of common
stock  at a  conversion  price  of  $.50  per  share.  The  exercise  of  all of
outstanding  warrants  and  options  and/or the  conversion  of the  outstanding
convertible  preferred  stock  would  dilute  the  then-existing   stockholders'
percentage  ownership of the common stock, and any sales in the public market of
the common stock  issuable upon such  exercise and  conversion  could  adversely
affect prevailing market prices for the common stock.  Moreover,  the terms upon
which we would be able to obtain  additional  equity  capital could be adversely
affected  because the holders of such  securities can be expected to exercise or
convert them at a time when we would, in all  likelihood,  be able to obtain any
needed  capital  on  terms  more  favorable  to  than  those  provided  by  such
securities.



                                      -19-

<PAGE>


FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

         Certain forward-looking statements,  including statements regarding our
expected financial position,  business and financing plans are contained in this
prospectus  or are  incorporated  in  documents  annexed  as  exhibits  to  this
prospectus.  These forward-looking  statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions  identify  forward-looking  statements.
Although we believe  that the  expectations  reflected  in such  forward-looking
statements are reasonable,  we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from such  expectations are disclosed in this prospectus.  All
subsequent written and oral  forward-looking  statements  attributable to us are
expressly qualified in their entirety by the cautionary statements.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates.  We undertake no obligations to publicly update or
revise any forward-looking  statements,  whether as a result of new information,
future events or otherwise.

YEAR 2000 COMPLIANCE

         We have  commenced  an  assessment  of the  readiness  of our  internal
business  information  systems  for  handling  the Year  2000 and the Year  2000
compliance  of our  products.  We believe that we will need to modify or replace
portions  of our  internal  business  information  systems  to ensure  Year 2000
compliance  and we expect  that we will  successfully  address  Year 2000 issues
relating to our internal business information systems by the end of fiscal 1999.

         We believe that our current products are Year 2000 compliant.  However,
it is possible that current or future  customers  will assert claims  against us
with  respect to Year 2000 issues and, in the event such claims are asserted and
adjudicated in favor of these customers, our liability could be material. We are
taking steps to identify  affected  customers and assist them in assessing risks
that  may be  associated  with  our  products.  We may  incur  increasing  costs
regarding  customer service related to these actions over the next few years. As
our customer service programs are currently ongoing,  we are unsure of the scope
of any resulting  Year 2000 issues and potential  liability  resulting from such
issues.  We do not know the potential impact on our business,  operating results
and financial condition with respect to these matters.

         We have had discussions with our significant vendors, service providers
and large  customers  to  evaluate  Year 2000  issues,  if any,  relating to the
interaction of their systems with our internal systems. We have not yet received
written compliance  information from these third parties and we cannot currently
determine  when we will  receive  all of this  information.  Thus,  despite  the
initiation of these discussions,  we lack the information  necessary to estimate
the  potential  impact of Year 2000  compliance  issues  relating to these third
parties  and their  interaction  with us and are unsure of when we will  receive
such information.



                                      -20-

<PAGE>


         While we have not incurred any material expenditures in connection with
identifying or evaluating Year 2000 compliance issues, there can be no assurance
that our Year 2000  compliance  costs will  continue at this level.  Most of our
expenses  have related to the  opportunity  cost of time spent by our  employees
evaluating  our  internal  business  information  systems,  our products and the
interaction  of our  internal  business  information  systems  with the internal
systems of third  parties.  Although we are unaware of any material  operational
issues or costs  associated  with  preparing our internal  business  information
systems and products for the Year 2000, we are unsure that we will avoid serious
unanticipated  negative  consequences and/or material costs caused by undetected
errors or defects in our technology.  Such unanticipated  negative  consequences
and/or material costs, if incurred,  could have a material adverse effect on our
business, operating results or financial condition.

         Because we are unaware of any material Year 2000 compliance  issues, we
lack a Year  2000-specific  contingency plan. If Year 2000 compliance issues are
discovered, we will evaluate the need for one or more contingency plans relating
to  such  issues.  If  we  are  unable  to  develop  and  implement  appropriate
contingency  plans, as needed,  in a timely manner, we may experience delays in,
or increased costs  associated  with,  implementation  of changes to address any
such  issues,  which  could  have a  material  adverse  effect on our  business,
operating results or financial condition.

ITEM 2.           DESCRIPTION OF PROPERTY

         The Company leases 16,385 square feet of office space in Uniondale, New
York  as  its  principal  administrative,  sales,  marketing  and  research  and
development  facility.  The lease relating to such facility  expires in 2004. In
addition,  the  Company  also  leases a sales  office on a  short-term  basis in
London,  England. The Company believes that its existing facilities are adequate
for its current needs but anticipates that it will need to seek additional space
in the future.  The Company  believes  that suitable  additional or  alternative
space  will be  available  in the  future on  commercially  reasonable  terms as
needed.

ITEM 3.           LEGAL PROCEEDINGS

                  Not Applicable.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


                  Not Applicable.


                                      -21-

<PAGE>



                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS

         The Company's Common Stock is traded on the Nasdaq SmallCap Market.  As
described  under  "Risk  Factors  That  May  Affect  Future  Results  --  Nasdaq
Delisting; Potential Limited Trading Market" the Company's Common Stock could be
delisted from the Nasdaq  SmallCap Market at any time and as a result the Common
Stock would be traded on the OTC Bulletin  Board and the Boston  Stock  Exchange
(assuming the Company  continues to meet the listing  requirements of the Boston
Stock Exchange).  The table below sets forth the range of closing sale prices of
the Common Stock on the Nasdaq SmallCap Market for the fiscal periods specified.
The Company's  Common Stock  commenced  trading on the Nasdaq SmallCap Market on
November 20, 1997.  Prior thereto,  there was no public market for the Company's
Common Stock.


                                                         Common Stock
                                                   High                Low
FISCAL 1998

First Quarter ...............................     $4.56               $3.00

Second Quarter ..............................      5.50                3.00

Third Quarter ...............................      4.69                1.00

Fourth Quarter ..............................      1.63                 .50

FISCAL 1997

Fourth Quarter...............................     $6.00               $4.75



         As of March 24, 1999,  there were 121 record  holders of the  Company's
Common Stock.  The Company  believes that there are in excess of 500  beneficial
owners of its Common Stock.

         The Company has never paid any  dividends  on its Common Stock and does
not  intend  to pay  such  dividends  in the  foreseeable  future.  The  Company
currently  intends to retain any future  earnings for the development and growth
of the Company.

         As described  under  "Management's  Discussion  and Analysis or Plan of
Operation Liquidity and Capital Resources," the Company has closed on the Series
A Private Placement (as hereinafter  defined) and the Series B Private Placement
(as hereinafter defined). The sale of the


                                      -22-

<PAGE>



securities in the Series A Private  Placement and the Series B Private Placement
was made pursuant to the exemption  contained in Section 4(2) of the  Securities
Act of  1933,  as  amended.  Southeast  Research  Partners,  Inc.  acted  as the
placement  agent of the  Series A  Private  Placement  and the  Series B Private
Placement.  For more information  relating to the Series A Private Placement and
the Series B Private Placement  (including the terms of the securities issued in
such private  placements),  please see "Management's  Discussion and Analysis of
Plan of Operation - Liquidity and Capital Resources."

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR
                  PLAN OF OPERATION

         The discussion in this report on Form 10-KSB  contains  forward-looking
statements that involve risks and  uncertainties.  The Company's  actual results
may differ materially from those discussed  herein.  Factors that could cause or
contribute to such differences  include, but are not limited to, those discussed
in the section above entitled  "Risk Factors That May Affect Future  Results" in
Item 1 of this  report as well as those  risks  discussed  in this  section  and
elsewhere in this report.

         The discussion  and analysis  below should be read in conjunction  with
the  Consolidated  Financial  Statements  of the Company  and the Notes  thereto
included elsewhere herein.

OVERVIEW

         The  Company  commenced  operations  in February  1989,  and until 1997
substantially  all of its revenues  have been derived  from  providing  contract
services to customers using its proprietary business intelligence technology. In
the third quarter of 1996, the Company shifted its focus to commercializing  its
proprietary  business  intelligence  technology and most of its activities since
then have been  devoted  to  research  and  development,  recruiting  personnel,
raising   capital  and   developing   a  sales  and   marketing   strategy   and
infrastructure. In November 1997, the Company began implementation of full-scale
marketing  activity for QueryObject  System. The Company has a limited operating
history as a software  product  company and has made only  limited  sales of its
QueryObject System.

         To date, the Company has incurred  substantial  losses from operations,
and at December 31, 1998, had an accumulated deficit of $35,412,456. The Company
expects to incur  substantial  operating  expenses  in the future to support its
product development efforts, establish and expand its domestic and international
sales and  marketing  capabilities,  including  recruiting  additional  indirect
channel partners,  and support and expand its technical and management personnel
and organization.

         Revenues  from  the  sales  of the  Company's  products  are  generally
recognized upon the execution of a software licensing  agreement and shipment of
the product,  provided that no  significant  vendor  obligations  remain and the
resulting  receivable is deemed collectible by management.  In instances where a
significant vendor obligation exists, revenue recognition is


                                      -23-

<PAGE>



delayed  until such  obligation  has been  satisfied.  Allowances  for estimated
future returns are provided for upon shipment.


                                      -24-

<PAGE>

RESULTS OF OPERATIONS

         The  following   table  sets  forth  certain  items  in  the  Company's
consolidated  statements of operations for the years ended December 31, 1998 and
1997 ($ in thousands):


                                                      Year Ended December 31,
                                                      -----------------------

                                                      1998              1997
                                                      ----              ----
Revenues
      Software licenses                           $    518            $    596
      Services and maintenance (1)                     111                 416
      Other                                            300                --
                                                  --------            --------

         TOTAL REVENUES                                929               1,012
                                                  --------            --------

Cost of revenues
      Software licenses                                  6                  75
      Services and maintenance                          89                 131
                                                  --------            --------

         TOTAL COST OF REVENUES                         95                 206
                                                  --------            --------

GROSS PROFIT                                           834                 806
                                                  --------            --------
Operating expenses
      Sales and marketing                            4,321               4,576
      Research and development                       2,306               2,523
      General and administrative                     1,500               1,914
                                                  --------            --------

         TOTAL OPERATING EXPENSES                    8,127               9,013
                                                  --------            --------

LOSS FROM OPERATIONS                                (7,293)             (8,207)
  Interest income                                      118                  78
  Interest expense                                    (135)               (806)
  Other income                                          16                   1
                                                  --------            --------

LOSS BEFORE EXTRAORDINARY ITEM                      (7,294)             (8,934)
  Extraordinary loss from early 
     extinguishment of debt                           --                (1,629)
                                                  --------            --------

         NET LOSS                                 $ (7,294)           $(10,563)
                                                  ========            ========

         (1) For the year ended  December  31, 1998,  services  and  maintenance
revenue consists entirely of maintenance revenue.


                                      -25-

<PAGE>

         REVENUES

         The  Company's  license  revenues  have been  generated  from  sales of
QueryObject  System.  Service  revenues  have been  generated  from fees paid by
customers on a project or contract  basis for data analysis by the Company using
its  proprietary  software,  and are recognized  over the term of the respective
agreements.  Maintenance revenues consist of ongoing support and product updates
that are recognized ratably over the term of the contract, which is typically 12
months  (See  Note 1 of Notes to the  Consolidated  Financial  Statements).  The
Company has recognized  revenue for all periods presented in accordance with the
American  Institute of Certified Public  Accountants  Statement of Position 97-2
entitled "Software Revenue Recognition."

         Total  revenues  decreased by $83,000,  or 8%, from  $1,012,000 for the
year ended  December 31, 1997 to $929,000 for the year ended  December 31, 1998.
License revenues decreased by $78,000, or 13%, from $596,000 in 1997 to $518,000
in 1998.  During  1998,  license  revenues  were  derived from the sale of eight
licenses,  while during 1997 license revenues were derived from the sale of four
licenses.  The  license  revenue  for 1997  resulted  primarily  from one  large
non-recurring   multi-platform  license  sale  pursuant  to  a  master  reseller
agreement and therefore was priced  significantly  higher than a single platform
sale.  Service and  maintenance  revenue  decreased  by $305,000,  or 73%,  from
$416,000  in 1997 to  $111,000  in 1998,  primarily  due to the  curtailment  of
service-based   engagements.   The  Company  has  discontinued  the  pursuit  of
service-based  engagements.  Service and  maintenance  revenue in 1998  consists
entirely of maintenance  revenues.  During 1998 the Company recorded $300,000 of
non-recurring  other revenue  relating to the Company's  completion of a project
for  a  computer  hardware  manufacturer  whereby  the  QueryObject  System  was
engineered to run on their platforms.

         COST OF REVENUES

         Cost  of  software  license  revenues  consists  primarily  of  product
packaging, documentation and production costs. Cost of software license revenues
decreased as a percentage  of software  license  revenues  from 12.5% in 1997 to
1.1% in 1998, primarily due to lower production and documentation costs. Cost of
services and maintenance  revenues  consist  primarily of customer support costs
and direct  costs  associated  with  providing  services.  Cost of services  and
maintenance  revenues  increased  as a percentage  of services  and  maintenance
revenues from 32% in 1997 to 80% in 1998,  primarily due to the  curtailment  of
service-based engagements and personnel costs related to customer support.

         OPERATING EXPENSES

         Sales and Marketing.  Sales and marketing expenses consist primarily of
personnel costs,  including sales  commissions and incentives,  of all personnel
involved  in the sales and  marketing  process,  as well as  related  recruiting
costs,  public relations,  advertising  related costs,  collateral  material and
trade shows.  Sales and marketing  expenses  decreased by $255,000,  or 6%, from
$4,576,000  in 1997 to  $4,321,000  in  1998,  primarily  due to  reduced  sales
personnel  related costs and recruiting  fees. As previously  noted, the Company
has discontinued the pursuit of service-based  engagements and accordingly,  has
changed the structure of its sales organization to correspond with that which is
required for a software product company,  which at this point in time,  requires
less sales employees. The Company believes that its sales and marketing expenses
will increase in absolute dollars as the Company continues to increase promotion
and other marketing expenses.


                                      -26-

<PAGE>

         Research and  Development.  Research and development  expenses  consist
primarily of salaries and other personnel  related  expenses,  recruiting  costs
associated  with  the  hiring  of  additional  software  engineers  and  quality
assurance personnel, consultant costs and depreciation of development equipment.
Research and development expenses decreased by $217,000,  or 9%, from $2,523,000
in 1997 to $2,306,000 in 1998,  primarily due to a decrease in consultant  costs
and  recruiting  expense.  The  Company  believes  that a  significant  level of
investment  for  product   research  and   development  is  required  to  remain
competitive and,  accordingly,  the Company anticipates that it will continue to
devote substantial  resources to product research and development and that these
costs will increase in absolute  dollars.  To date, all research and development
costs have been expensed as incurred.

         General and Administrative. General and administrative expenses consist
primarily  of personnel  costs for finance,  MIS,  human  resources  and general
management,  as  well  as  insurance  and  professional  expenses.  General  and
administrative  expenses decreased by $414,000,  or 22%, from $1,914,000 in 1997
to $1,500,000 in 1998,  primarily due to a decrease in consulting  expense.  The
Company believes that its general and  administrative  expenses will increase in
absolute  dollars  as it  incurs  additional  costs  related  to  being a public
company, including investor relations programs.

         INTEREST INCOME AND INTEREST EXPENSE

         Interest income represents income earned on the Company's cash and cash
equivalents.  Interest income increased by $40,000, or 51%, from $78,000 in 1997
to  $118,000  in  1998,  primarily  due to a  higher  level  of  cash  and  cash
equivalents on deposit during 1998.

         Interest expense  generally  represents  charges relating to the H.C.C.
Financial Services Loan Agreement (the "Loan Agreement") and interest expense on
capital equipment leases, and for 1997,  interest relating to certain bridge and
interim  financings  (See  Note  6  of  Notes  to  the  Consolidated   Financial
Statements).  Interest expense  decreased by $671,000,  or 83%, from $806,000 in
1997 to $135,000 in 1998.  This  decrease was  primarily due to the inclusion in
1997 of interest expense and the amortization of debt discount and debt issuance
costs  relating  to certain  bridge and interim  financings.  In  addition,  the
outstanding  balance of the Loan  Agreement  was repaid in full  during  October
1998.

         EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT

         In August 1997, the Company consummated a bridge financing. The Company
repaid the  noteholders  of the bridge  financing  out of the proceeds  from its
initial  public   offering  which  closed  on  November  25,  1997  (the  "IPO")
Accordingly,  in 1997 the Company recorded an  extraordinary  loss of $1,629,000
relating to the early  extinguishment of debt. The extraordinary  loss comprised
unamortized  deferred debt discount and unamortized deferred debt issuance costs
related to the bridge financing.

         PROVISION FOR INCOME TAXES

         The Company  accounts for income taxes in accordance  with Statement of
Financial  Accounting  Standards  No. 109,  "Accounting  for Income  Taxes." The
Company incurred net operating losses in 1998 and 1997 and consequently  paid no
federal or state income taxes. At


                                      -27-

<PAGE>



December  31,  1998,  the  Company had net  operating  losses and  research  and
experimental tax credit carryforwards of $29,660,000 and $207,000, respectively,
available to offset future  federal  taxable income and tax. These net operating
loss  carryforwards   expire  at  various  dates  through  2018.   Although  the
determination  of whether an ownership change has occurred is subject to factual
and legal uncertainties,  the Company believes that an ownership change occurred
upon the  completion of previous  financings  and such  "ownership  change" will
materially  limit  the  Company's  ability  to  utilize  its  NOL  carryforward.
Moreover,  while such loss  carryforwards are available to offset future taxable
income of the  Company,  the  Company  does not  expect to  generate  sufficient
taxable  income  so as to  utilize  all or a  substantial  portion  of such loss
carryforwards prior to their expiration.

LIQUIDITY AND CAPITAL RESOURCES

         On November 25, 1997, the Company consummated the IPO. The Company sold
2,500,000  shares  of  Common  Stock  in  the  IPO  and  received  approximately
$12,470,000  of cash,  net of  underwriting  discounts,  commissions  and  other
offering costs. The Company  immediately repaid $5,100,000 plus accrued interest
due on bridge and interim  financings  payable.  Upon completion of the IPO, all
outstanding shares of then outstanding preferred stock (a total of approximately
1,697,000 shares) were converted into shares of Common Stock.

         The IPO  prospectus  indicated  that  the  Company  believed  that  the
proceeds of the IPO together with then existing  resources and cash  anticipated
to be generated  from  operations  would be  sufficient to satisfy the Company's
cash  requirements  for at least 14  months  after  the  completion  of the IPO.
However,  as of September 30, 1998  (approximately 10 months after the IPO), the
Company had negative  working  capital of $1,744,000.  The variance  between the
Company's  expectations at the time of the IPO and the Company's analysis of its
cash position was  primarily  due to lower than expected  sales of the Company's
products.  The Board of Directors  of the Company  considered  various  means of
procuring additional financing and had determined that a private offering of the
Company's securities would be in the best interests of the Company.

         As a result,  in October and November 1998, the Company had the initial
closing of two  private  placements  -- the Series A Private  Placement  and the
Series  B  Private  Placement.  The  Series A  Private  Placement  consisted  of
1,750,000  Units (the "Series A Units") with a gross sales price of  $3,500,000.
The Series B Private Placement consisted of 10 Units (the "Series B Units") with
a gross sales price of $1,000,000.  Each Series A Unit consisted of one share of
Series A Convertible  Preferred Stock ("Series A Preferred Stock") and a warrant
to purchase  2.5 shares of Common Stock at a per share  exercise  price equal to
$.50.  Each Series B Unit  consisted  of 10,000  shares of Series B  Convertible
Preferred  Stock  ("Series B  Preferred  Stock")  and  warrants  to  purchase an
aggregate of 125,000  shares of Common Stock at a per share exercise price equal
to $.50.  The Series A Units were sold at a purchase price of $2.00 per Unit and
each share of Series A Preferred Stock share is convertible  into four shares of
Common Stock.  The Series B Units were sold at a purchase  price of $100,000 per
Unit and each  share of Series B  Preferred  Stock is  convertible  into  twenty
shares  of  Common  Stock.  The  effective  purchase  price,  on a Common  Stock
equivalent  basis was $.50 per common share,  which  represented a discount from
the fair market  value of the  Company's  Common  Stock on the various  dates of
issuance.  The  Company  consummated  the final  closing on each of the Series A
Private  Placement  and the  Series B Private  Placement  in  February  1999 and
received an  aggregate  of (1)  $3,181,000  from the Series A Private  Placement
(after deduction of commissions and expenses payable to the placement agent) and
(ii)  $814,000  from  the  Series  B  Private   Placement  (after  deduction  of
commissions and expenses payable to the placement agent).


                                      -28-

<PAGE>

         In  connection  with the Series A and Series B Private  Placements  the
placement agent was granted an option to purchase additional Series A and Series
B Units  equal to 10% of the  Series A and  Series B Units  sold and  received a
commission  and  non-accountable  expense  allowance  equal  to  5.6%  and  9.3%
respectively, of the gross proceeds received by the Company.

         The following is a description of the securities issued in the Series A
Private Placement and the Series B Private Placement:

         SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK

         Stated Value. Each share of Series A Preferred Stock has a stated value
equal  to $2.00  (the  "Series  A Stated  Value")  and  each  share of  Series B
Preferred  Stock  has a stated  value  equal to  $10.00  (the  "Series  B Stated
Value").

         Liquidation Preference.  Upon a liquidation of the Company (including a
sale by the  Company  of all or  substantially  all of its assets or a merger or
consolidation  of the Company with another  Company where the Company is not the
surviving  entity),  the assets of the Company available for distribution to the
stockholders  of the Company (after payment or provision for  liabilities of the
Company), whether from capital, surplus or earnings, shall be distributed in the
following order of priority: (i) the holders of the Series A Preferred Stock and
the  Series  B  Preferred   Stock   shall  rank  pari  passu  with   respect  to
distributions,  (ii) the  holders of the Series A  Preferred  Stock and Series B
Preferred  Stock shall be entitled to receive,  prior and in  preference  to any
distribution  to the holders of any Junior  Securities (as defined below) of the
Company, an amount equal to the Series A Stated Value and Series B Stated Value,
respectively,  for each  share of the  Series A  Preferred  Stock  and  Series B
Preferred Stock then  outstanding and (iii) any remaining  assets of the Company
available  for  distribution  to  the  stockholders  of  the  Company  shall  be
distributed pro rata to the holders of issued and  outstanding  shares of Common
Stock.

         Ranking. The Series A Preferred Stock and Series B Preferred Stock will
rank senior to all other classes and series of capital stock of the Company then
existing or thereinafter authorized,  issued or outstanding,  including, without
limitation,  the Common Stock, and any other classes and series of capital stock
of  the  Company  then  or  thereinafter   authorized,   issued  or  outstanding
(collectively, "Junior Securities").

         Dividends.  The  holders of the Series A  Preferred  Stock and Series B
Preferred  Stock shall not be entitled to receive any stated  dividend  payment,
whether in cash or  otherwise.  No  dividends  shall be payable  upon any Junior
Securities unless equivalent  dividends,  on an as-converted basis, are declared
and paid concurrently on the Series A Preferred Stock and the Series B Preferred
Stock.

         Conversion.  Each  share of  Series  A  Preferred  Stock  is  initially
convertible,  at any time,  into four  shares of Common  Stock and each share of
Series B Preferred Stock is initially  convertible,  at any time, into 20 shares
of Common Stock.  The Series A Preferred Stock and Series B Preferred Stock were
issued with a conversion ratio that represented a discount from the market value
at the  time  of  issuance.  Accordingly,  the  discount  amount  is  considered
incremental  yield  (the  "beneficial  conversion  feature"),  to the  preferred
stockholders  and has been  accounted  for as an embedded  dividend to preferred
stockholders.  Based on the conversion terms of the Series A Preferred Stock and
Series B Preferred Stock, an embedded dividend of $2,251,438 or $0.44 per share,
was added to net loss in the calculation of net loss per share in 1998.


                                      -29-

<PAGE>

         WARRANTS

         Each Series A and Series B Warrant  entitles the  registered  holder to
purchase 2-1/2 shares of Common Stock,  subject to adjustment to protect against
dilution,  at a per share exercise  price equal to $.50 (the "Exercise  Price"),
commencing on the date of the closing of the Series A Private  Placement and the
Series B Private Placement, respectively, and ending on the third anniversary of
the respective closing,  unless extended by the Company, at its discretion.  The
Series A and Series B Warrants may be called for  redemption by the Company at a
redemption  price of $.01 per warrant  upon not less than 30 days prior  written
notice if the closing  price of the Common  Stock shall have been at least $1.60
per share (subject to adjustment in the event of a subdivision or combination of
the shares of Common  Stock) on 20 trading  days during any  30-consecutive  day
trading  period ending not more than three days prior to the date such notice is
given.

         In September 1998, the Company borrowed  $410,000 from  stockholders of
the Company in exchange for unsecured  promissory  notes (the "Notes  Payable").
The Notes  Payable bear  interest at 12% per annum and are due at the earlier of
March 2000 or the successful  consummation  of the Series A and Series B Private
Placement. Upon the initial closing of the Series A Private Placement in October
1998,  $20,000 of such Notes was converted into Series A Units.  During December
1998,  $90,000  of such Notes was  repaid.  The  balance  of the Notes  Payable,
$300,000,  was still outstanding as of December 31, 1998, and was repaid in full
in January 1999.  Further,  in October 1998, the Company  borrowed an additional
$80,000 from  stockholders  of the Company in exchange  for notes under  similar
terms and  conditions as set forth above.  In November  1998,  the $80,000 notes
were repaid.

         Prior to the IPO, the Company funded its operations  primarily  through
sales  of  preferred  equity   securities,   with  net  proceeds   therefrom  of
approximately  $14,000,000 and, to a lesser extent,  through interim  financings
and a bridge  financing,  through capital and operating  equipment  leases,  the
issuance of notes payable and the Loan  Agreement.  As of December 31, 1998, the
Company had $854,000 in cash and cash  equivalents and a working capital deficit
of $391,000. Net cash used in operating activities was $7,089,000 and $7,456,000
in 1998 and 1997, respectively.  For 1998, net cash used in operating activities
was primarily  attributable to a net loss of $7,294,000,  less  depreciation and
amortization of $421,000 and a decrease in accounts receivable of $223,000.  For
1997, net cash used in operating activities was primarily  attributable to a net
loss of $10,563,000 less an extraordinary  loss on extinguishment of debt from a
1997 bridge financing options issued for consulting services and amortization of
debt discount and issuance costs. Net cash provided by financing  activities was
$2,727,000 and $12,196,000 in 1998 and 1997, respectively, primarily as a result
of the 1998 Private Placement in 1998 and the IPO in 1997.

         The Company does not currently  have a line of credit with a commercial
bank.  Under the Loan  Agreement,  a  stockholder  agreed to advance the Company
funds at an  interest  rate of 18% per  annum,  such  indebtedness  secured by a
security  interest in and lien on all of the Company's  assets. An addendum (the
"Addendum") to the Loan  Agreement  provided that H.C.C.  Financial,  the lender
thereunder,  would not demand  payment under the Loan Agreement and required the
Company to maintain a restricted  Certificate  of Deposit,  until the earlier of
March 31, 1998, a material  breach by the Company under the Addendum or an event
of default under the Loan  Agreement.  In April 1998, the Company began repaying
the indebtedness under the Loan Agreement, utilizing the funds on deposit in the
restricted  Certificate of Deposit.  In October 1998, the remaining  balance was
repaid in full and the restricted Certificate of Deposit account was closed.


                                      -30-

<PAGE>



         As of December 31, 1998, the Company's principal  commitments consisted
of obligations under operating and capital leases and employment agreements.  At
that date,  the Company had  approximately  $347,000 in  outstanding  borrowings
under capital leases which are payable through 2001 (see Note 11 of Notes to the
Consolidated  Financial  Statements).  Pursuant to  employment  agreements  with
executive officers of the Company,  the Company is obligated to pay $262,000 and
$0 in salaries for the years ended December 31, 1999 and 2000, respectively.

         As of December 31, 1998,  the Company had a deficit in working  capital
of $341,000. Subsequent to December 31, 1998, the Company received $1,396,000 in
working  capital from the proceeds of the 1998  Private  Placement  and $341,250
from the exercise of warrants granted in the 1998 Private Placement. The Company
has incurred operating losses since inception,  has incurred negative cash flows
from  operating  activities and had an  accumulated  deficit of $35,412,456  and
$25,866,986 as of December 31, 1998 and 1997, respectively.  The Company has had
a limited  operating  history as a  software  product  company  and has not made
significant sales of its products. Therefore, revenues are difficult to predict.
The Company  anticipates that its current cash and cash equivalent  position and
stock  subscriptions  receivable  will be  insufficient to satisfy its liquidity
requirements,  and as a result,  the Company will seek to sell additional equity
or convertible  debt  securities.  The sale of additional  equity or convertible
debt   securities   could  result  in  additional   dilution  to  the  Company's
stockholders.


ITEM 7.           FINANCIAL STATEMENTS

                  See Index to Financial Statements.

ITEM 8.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

                  None.

                                      -31-

<PAGE>

                                    PART III

ITEM 9.           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                  CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
                  OF THE EXCHANGE ACT.

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than  April  30,  1999  pursuant  to  Regulation  14A of the  General  Rules and
Regulations under the Securities Exchange Act of 1934 ("Regulation 14A").

ITEM 10.          EXECUTIVE COMPENSATION.

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than April 30, 1999 pursuant to Regulation 14A.

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN
                  BENEFICIAL OWNERS AND MANAGEMENT.

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than April 30, 1999 pursuant to Regulation 14A.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

                  The  information  required  by this  item is  incorporated  by
reference from the Company's  definitive  proxy  statement to be filed not later
than April 30, 1999 pursuant to Regulation 14A.



                                      -32-

<PAGE>

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

(a)      EXHIBITS


      Exhibit
      Number                 Exhibits
      ------                 --------
       3.1                   Certificate   of   Incorporation   of  the  Company
                             (Incorporated  by  reference  to Exhibit 3.1 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       3.2                   By-laws of the Registrant, as amended (Incorporated
                             by  reference  to Exhibit  3.2 to the  Registration
                             Statement on Form SB-2, No. 333-34667).
       4.1                   Specimen  Certificate  of the  Registrant's  Common
                             Stock  (Incorporated by reference to Exhibit 4.1 to
                             the  Registration  Statement on Form SB-2, No. 333-
                             34667).
       4.2                   Form of Representative's Purchase Option granted to
                             GKN Securities Corp.  (Incorporated by reference to
                             Exhibit 4.2 to the  Registration  Statement on Form
                             SB-2, No. 333-34667).
       4.3                   Form of Warrant issued in connection  with the July
                             1997 Private  Placement  (Incorporated by reference
                             to Exhibit  4.3 to the  Registration  Statement  on
                             Form SB-2, No. 333-34667).
       4.4                   Certificate of Designations,  Preferences and Other
                             Rights and  Qualifications  of Series A Convertible
                             Preferred  Stock   (Incorporated  by  reference  to
                             Exhibit  99(A) of the Form 10-QSB for the quarterly
                             period ended September 30, 1998)
       4.5                   Certificate  of  Correction to the  Certificate  of
                             Designations,  Preferences  and  Other  Rights  and
                             Qualifications  of Series A  Convertible  Preferred
                             Stock  (Incorporated  by reference to Exhibit 99(B)
                             to the Form 10-QSB for the  quarterly  period ended
                             September 30, 1998).
       4.6                   Certificate of Designations,  Preferences and Other
                             Rights and  Qualifications  of Series B Convertible
                             Preferred  Stock   (Incorporated  by  reference  to
                             Exhibit  99(C) to the Form 10-QSB for the quarterly
                             period ended September 30, 1998).
       4.7                   Form  of  Warrant   Issued  in  Private   Placement
                             (Incorporated  by reference to Exhibit 99(D) to the
                             Form  10-QSB  for  the   quarterly   period   ended
                             September 30, 1998).
       10.1                  1991 Incentive Stock Option Plan  (Incorporated  by
                             reference  to  Exhibit  10.1  to  the  Registration
                             Statement on Form SB-2, No. 333-34667).
       10.2                  Form of Stock Option  Agreement  for  Non-Qualified
                             Options  granted  to  Advisors   (Incorporated   by
                             reference  to  Exhibit  10.2  to  the  Registration
                             Statement on Form SB-2, No. 333-34667).
       10.3                  Employment  Agreement,  dated as of May 1, 1997, by
                             and  among,   the   Company   and  Daniel  M.  Pess
                             (Incorporated  by  reference to Exhibit 10.5 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       10.4                  Employment  Agreement,  dated as of May 8, 1996, by
                             and   among,   the   Company   and  Andre   Szykier
                             (Incorporated  by  reference to Exhibit 10.6 to the
                             Registration    Statement   on   Form   SB-2,   No.
                             333-34667).
       *10.5                 Amendment  to  Employment  Agreement,  dated  as of
                             December  16, 1998,  by and among,  the Company and
                             Andre Szykier.



                                      -33-

<PAGE>


      Exhibit
      Number                 Exhibits
      -------                --------

        10.6                 Employment  Agreement,  dated  as of  September  1,
                             1997,  by and  among,  the  Company  and  Robert A.
                             Thompson (Incorporated by reference to Exhibit 10.7
                             to the  Registration  Statement  on Form SB-2,  No.
                             333-34667).
        10.7                 Employment Agreement, dated as of October 14, 1997,
                             by and  among,  the  Company  and  Alan W.  Kaufman
                             (Incorporated  by reference  to Exhibit  10.9(a) to
                             the  Registration   Statement  on  Form  SB-2,  No.
                             333-34667).
       *10.8                 Amendment  to  Employment  Agreement,  dated  as of
                             January 9, 1999, by and among, the Company and Alan
                             W. Kaufman.
       *11.1                 Computation of Net Loss Per Share.
       *23                   Consent of PricewaterhouseCoopers LLP
       *27                   Financial Data Schedule

---------------------------

*        Filed herewith.
(b)      Reports on Form 8-K
         None.


                                      -34-

<PAGE>



         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    QUERYOBJECT SYSTEMS CORPORATION


Dated:   March 29, 1999             By:   /s/ Robert Thompson
                                        -------------------------------------
                                        Robert Thompson
                                        President and Chief Executive Officer



                                POWER OF ATTORNEY

         QueryObject  Systems  Corporation and each of the undersigned do hereby
appoint Robert  Thompson and Daniel M. Pess and each of them  severally,  its or
his true and  lawful  attorney  to  execute  on  behalf of  QueryObject  Systems
Corporation  and the undersigned any and all amendments to this Annual Report on
Form 10-KSB and to file the same with all exhibits  thereto and other  documents
in connection  therewith,  with the Securities and Exchange Commission;  each of
such attorneys shall have the power to act hereunder with or without the other.

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated:



               Signature              Title                             Date
               ---------              -----                             ----

/S/ ALAN W. KAUFMAN          Chairman of the Board              March 29, 1999
-----------------------
Alan W. Kaufman


/S/ ROBERT THOMPSON          President and Chief Executive      March 29, 1999
-----------------------
Robert Thompson              Officer (Principal Executive
                             Officer)


/S/ DANIEL M. PESS           Executive Vice President, Chief    March 29, 1999
-----------------------
Daniel M. Pess               Operating Officer and Chief
                             Financial Officer (Principal
                             Financial Officer and Principal
                             Accounting Officer)

/S/ ANDRE SZYKIER            Director                           March 29, 1999
-----------------------
Andre Szykier

/S/ RINO BERGONZI            Director                           March 29, 1999
-----------------------
Rino Bergonzi


                                      -35-

<PAGE>


/S/ IRWIN JACOBS             Director                           March 29, 1999
-----------------------
Irwin Jacobs


/S/ AMY L. NEWMARK           Director                           March 29, 1999
-----------------------
Amy L. Newmark





                                      -36-


<PAGE>

QUERYOBJECT SYSTEMS
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997



<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE

Report of Independent Accountants...........................................F-2
Consolidated Balance Sheet as of December 31, 1998..........................F-3
Consolidated Statement of Operations for the years 
     ended December 31, 1998 and 1997.......................................F-4
Consolidated Statement of Changes in Stockholders' Equity 
     (Deficit) for the years ended
     December 31, 1998 and 1997.............................................F-5
Consolidated Statement of Cash Flows for the years ended 
     December 31, 1998 and 1997.............................................F-6
Notes to the Consolidated Financial Statements..............................F-7



                                       F-1


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
QueryObject Systems Corporation

In our opinion,  the  accompanying  consolidated  balance  sheet and the related
consolidated  statements  of  operations,  of  changes in  stockholders'  equity
(deficit)  and of cash flows  present  fairly,  in all  material  respects,  the
financial  position of Query  Object  Systems  Corporation  (the  "Company")  at
December 31, 1998,  and the results of its operations and its cash flows for the
two  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.  These financial  statements are the responsibility of the Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.  We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management,  and evaluating the overall consolidated financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for the
opinion expressed above.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations,  has deficiencies in working capital and  stockholders'  equity
and has  incurred  negative  cash flows  from  operating  activities  that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The  consolidated
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.



PricewaterhouseCoopers LLP
Melville, New York
March 19, 1999


                                      F-2
<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------


                                                                   December 31,
                                                                       1998
                                                                   ------------
ASSETS
Current assets
     Cash and cash equivalents                                   $    854,018
     Accounts receivable, net of allowance for doubtful
         accounts of $21,900                                          276,527
     Prepaid expenses and other current assets                         37,751
                                                                 ------------

             TOTAL CURRENT ASSETS                                   1,168,296

Property and equipment, net                                           960,236
Deposits and other assets                                             146,031
                                                                 ------------

             TOTAL ASSETS                                        $  2,274,563
                                                                 ------------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
     Accounts payable                                            $    491,442
     Accrued expenses                                                 795,333
     Capital lease obligations due within one year                    175,809
     Deferred revenue                                                  84,791
     Deferred rent                                                     12,016
                                                                 ------------

             TOTAL CURRENT LIABILITIES                              1,559,391

Stockholder notes payable                                             300,000
Capital lease obligations                                             171,486
Deferred rent                                                         257,812
                                                                 ------------

             TOTAL LIABILITIES                                      2,288,689
                                                                 ------------

Stockholders' Deficit
     Preferred stock, $.001 par value: 2,000,000 shares
          authorized; 1,731,125 and 100,000
          shares of Series A and B, respectively,
          issued and outstanding                                        1,831
     Common stock, $.001 par value: 30,000,000 shares
         authorized; 5,122,985 shares issued and outstanding            5,123
     Additional paid-in-capital                                    36,910,576
     Accumulated deficit                                          (35,412,456)
     Stock subscriptions receivable                                (1,519,200)
                                                                 ------------

             TOTAL STOCKHOLDERS' DEFICIT                              (14,126)
                                                                 ------------

Commitments and contingencies (Notes 2 and 13)

             TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT         $  2,274,563
                                                                 ------------

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3

<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                               1998            1997
                                                                         ----------------------------
<S>                                                                      <C>             <C>         

Revenues
     Software licenses                                                   $    517,350    $    596,345
     Services and maintenance                                                 111,155         415,814
     Other                                                                    300,000            --
                                                                         ------------    ------------

             TOTAL REVENUES                                                   928,505       1,012,159

Cost of revenues
     Software licenses                                                          5,668          74,605
     Services and maintenance                                                  88,756         131,190
                                                                         ------------    ------------

             TOTAL COST OF REVENUES                                            94,424         205,795
                                                                         ------------    ------------

GROSS PROFIT                                                                  834,081         806,364
                                                                         ------------    ------------

Operating expenses
     Sales and marketing                                                    4,321,359       4,575,735
     Research and development                                               2,305,678       2,523,127
     General and administrative                                             1,500,506       1,914,252
                                                                         ------------    ------------

             TOTAL OPERATING EXPENSES                                       8,127,543       9,013,114
                                                                         ------------    ------------

LOSS FROM OPERATIONS                                                       (7,293,462)     (8,206,750)

Interest income                                                               118,423          77,979
Interest expense                                                             (135,498)       (805,761)
Other income, net                                                              16,505             542
                                                                         ------------    ------------

LOSS BEFORE EXTRAORDINARY ITEM                                             (7,294,032)     (8,933,990)

Extraordinary loss from early extinguishment of debt                             --        (1,629,494)
                                                                         ------------    ------------

NET LOSS                                                                 $ (7,294,032)   $(10,563,484)
                                                                         ------------    ------------

CALCULATION OF NET LOSS AVAILABLE TO COMMON STOCKHOLDERS

Net loss                                                                   (7,294,032)    (10,563,484)
Effect of beneficial conversion feature of convertible preferred stock     (2,251,438)           --
                                                                         ------------    ------------

Net loss available to common stockholders                                $ (9,545,470)   $(10,563,484)

Net loss per share before extraordinary item                             $      (1.86)   $      (3.19)
Extraordinary item                                                               --             (0.58)
                                                                         ------------    ------------

Basic and diluted net loss per common share                              $      (1.86)   $      (3.77)

Weighted average shares used in per share computation (Note 1)              5,120,205       2,802,532
                                                                         ------------    ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-4
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                     SERIES A CONVERTIBLE         SERIES B CONVERTIBLE      SERIES C CONVERTIBLE    
                                                        PREFERRED STOCK              PREFERRED STOCK           PREFERRED STOCK      
                                                   ---------------------------------------------------------------------------------
                                                     SHARES           AMOUNT      SHARES          AMOUNT       SHARES       AMOUNT  
                                                   ---------------------------------------------------------------------------------

<S>                                                    <C>             <C>       <C>               <C>        <C>            <C>    
Balance at January 1, 1997                             32,582          $ 33      17,737            $ 18       230,498        $ 230  

Issuance of common stock warrants in
connection with bridge financing                                                                                                    
Accretion of excess of redemption value of
    Series D preferred stock over fair value
    at issuance date                                                                                                                
Issuance of options on Series D
    preferred stock                                                                                                                 
Conversion of preferred stock to
    common stock upon initial public offering         (32,582)          (33)    (17,737)            (18)     (230,498)        (230) 
Conversion of Series D preferred stock to
    common stock upon initial public offering                                                                                       
Issuance of common stock upon initial public
    offering, net of issuance cost of $2,530,426                                                                                    
Repurchase of common stock                                                                                                          
Issuance of common stock options for
    consulting services                                                                                                             
Common stock options and warrants exercised                                                                                         
Net loss                                                                                                                            
                                                   -----------  ------------  ----------  --------------  ------------  ----------- 

Balance at December 31, 1997                                -             -           -               -             -            -  

Issuance of Series A & B preferred stock:
    For cash and notes, net of issuance costs       1,721,125         1,721     100,000             100                             
    In settlement of bridge notes payable              10,000            10                                                         
Beneficial conversion feature of convertible
    Series A and B preferred stock                                                                                                  
Issuance of common stock options for
    consulting services                                                                                                             
Receipt of receivable from stockholder                                                                                              
Common stock options exercised                                                                                                      
Net loss                                                                                                                            
                                                   -----------  ------------  ----------  --------------  ------------  ----------- 

Balance at December 31, 1998                        1,731,125       $ 1,731     100,000           $ 100             -            -  
                                                   ---------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

                                                                                                                           TOTAL
                                                        COMMON STOCK      ADDITIONAL                       STOCK       STOCKHOLDERS'
                                                  -------------------      PAID-IN      ACCUMULATED    SUBSCRIPTIONS      EQUITY 
                                                     SHARES    AMOUNT      CAPITAL        DEFICIT        RECEIVABLE     (DEFICIT)
                                                  ---------------------------------------------------------------------------------
                                                                                                                                   
<S>                                                 <C>         <C>       <C>           <C>             <C>           <C>          
Balance at January 1, 1997                          863,590     $ 864     $ 4,035,258   $ (14,343,938)  $   (12,300)  $(10,319,835)
                                                                                                                                   
Issuance of common stock warrants in                                                                                               
connection with bridge financing                                            1,512,397                                    1,512,397 
Accretion of excess of redemption value of                                                                                         
    Series D preferred stock over fair value                                                                                       
    at issuance date                                                                         (917,571)                    (917,571)
Issuance of options on Series D                                                                                                    
    preferred stock                                                           363,800                                      363,800 
Conversion of preferred stock to                                                                                                   
    common stock upon initial public offering       331,523       331             (50)                                           - 
Conversion of Series D preferred stock to                                                                                          
    common stock upon initial public offering     1,365,790     1,366      11,583,231                                   11,584,597 
Issuance of common stock upon initial public                                                                                       
    offering, net of issuance cost of $2,530,426  2,500,000     2,500      12,467,074                                   12,469,574 
Repurchase of common stock                           (7,368)       (7)                        (41,993)                     (42,000)
Issuance of common stock options for                                                                                               
    consulting services                                                       321,470                                      321,470 
Common stock options and warrants exercised          57,070        57         101,526                                      101,583 
Net loss                                                                                  (10,563,484)                 (10,563,484)
                                                  ---------- --------- --------------- ---------------  ------------  -------------
                                                                                                                                   
Balance at December 31, 1997                      5,110,605     5,111      30,384,706     (25,866,986)      (12,300)     4,510,531 
                                                                                                                                   
Issuance of Series A & B preferred stock:                                                                                          
    For cash and notes, net of issuance costs                               4,096,777                    (1,519,200)     2,579,398 
    In settlement of bridge notes payable                                      19,990                                       20,000 
Beneficial conversion feature of convertible                                                                                       
    Series A and B preferred stock                                          2,251,438      (2,251,438)                           - 
Issuance of common stock options for                                                                                               
    consulting services                                                       145,792                                      145,792 
Receipt of receivable from stockholder                                                                       12,300         12,300 
Common stock options exercised                       12,380        12          11,873                                       11,885 
Net loss                                                                                   (7,294,032)                  (7,294,032)
                                                  ---------- --------- --------------- ---------------  ------------  -------------
                                                                                                                                   
Balance at December 31, 1998                      5,122,985   $ 5,123    $ 36,910,576   $ (35,412,456)  $(1,519,200)  $    (14,126)
                                                  ---------------------------------------------------------------------------------
</TABLE>

                                       F-5
<PAGE>

QUERYOBJECT SYSTEMS CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOW
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                           1998             1997
                                                                     -----------------------------

<S>                                                                  <C>             <C>
Cash flows from operating activities
     Net loss                                                        $ (7,294,032)   $(10,563,484)
     Adjustments to reconcile net loss to net cash used in
        operating activities
            Depreciation and amortization                                 420,820         373,434
            Write off of leasehold improvements                              --             5,825
            Amortization of debt discount                                    --           318,705
            Amortization of debt issuance costs                              --           100,432
            Extraordinary loss on extinguishment of debt                     --         1,629,494
            Options issued for consulting services                        145,792         685,270
            Changes in assets and liabilities
                Accounts receivable, net                                  223,240         320,540
                Prepaid expenses and other current assets                  10,503         (17,735)
                Deposits and other assets                                   4,243         (53,318)
                Accounts payable and accrued expenses                    (355,338)       (166,078)
                Deferred rent                                                 896          13,293
                Deferred revenue                                           54,756        (102,264)
                Customer advance                                         (300,000)           --
                                                                     ------------    ------------

                NET CASH USED IN OPERATING ACTIVITIES                  (7,089,120)     (7,455,886)
                                                                     ------------    ------------

Cash flows from investing activities
     Acquisitions of property and equipment                              (132,795)       (590,608)
     Note receivable from stockholder                                     (65,000)        (42,000)
     Purchase of restricted certificate of deposit                        (23,201)        (37,785)
                                                                     ------------    ------------

                NET CASH USED IN INVESTING ACTIVITIES                    (220,996)       (670,393)
                                                                     ------------    ------------

Cash flows from financing activities
     Proceeds from issuance of Series A and B preferred stock, net      2,579,398            --
     Proceeds from issuance of common stock, net                           11,885      12,571,157
     Proceeds from Notes and Bridge financings payable, net               490,000       5,313,766
     Repayment of Notes and Bridge financings payable                    (170,000)     (5,850,000)
     Repayment of notes payable                                              --           (25,000)
     Proceeds from loan payable to stockholders                          (891,335)       (120,000)
     Proceeds from loan receivable from stockholder                        12,300            --
     Payments of capital lease obligations                               (235,706)       (254,979)
     Proceeds from sale-leaseback transaction                              29,202         561,119
     Release of restricted certificate of deposit                         901,040            --
                                                                     ------------    ------------

                NET CASH PROVIDED BY FINANCING ACTIVITIES               2,726,784      12,196,063
                                                                     ------------    ------------

Net (decrease) increase in cash and cash equivalents                   (4,583,332)      4,069,784

Cash and cash equivalents at beginning of year                          5,437,350       1,367,566
                                                                     ------------    ------------

Cash and cash equivalents at end of year                             $    854,018    $  5,437,350
                                                                     ------------    ------------
</TABLE>

                                      F-6

<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         ORGANIZATION
         QueryObject   Systems   Corporation   (formerly  CrossZ  Software)  was
         originally  incorporated  in California in February  1989. In May 1998,
         and pursuant to a plan of corporate reorganization,  the Company merged
         with its  wholly  owned  Delaware  subsidiary.  The  Company  develops,
         markets  and  supports  proprietary  business   intelligence   software
         solutions that enable  business  managers to make  strategic  decisions
         based on their corporate data.

         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION
         The  consolidated   financial   statements   include  the  accounts  of
         QueryObject  Systems  Corporation and its wholly owned subsidiary.  All
         significant   intercompany   transactions   have  been   eliminated  in
         consolidation.

         NET LOSS PER COMMON SHARE
         Basic net loss per common  share is computed  by dividing  net loss for
         the  period  by the sum of the  weighted  average  number  of shares of
         common stock issued and outstanding after conversion of all outstanding
         preferred stock effected  contemporaneously  with the IPO. For the year
         ended December 31, 1997, all then outstanding  shares of Series A, B, C
         and D Preferred Stock were converted as though such conversion occurred
         at the  beginning  of the  earliest  period  presented  or the  date of
         issuance in the case of the Series D. Historical net loss per share for
         1997 has not been  presented  since  such  amount  is not  deemed to be
         meaningful  due to the  significant  change  in the  Company's  capital
         structure resulting from the Company's IPO.

         At December  31,  1998 and 1997,  outstanding  options and  warrants to
         purchase 12,033,604 and 2,532,177 shares of common stock, with exercise
         prices  ranging  from  $.50 to $8.56  could  potentially  dilute  basic
         earnings per share. Such options and warrants,  as well as Series A and
         B Convertible Preferred Stock issued in 1998, have not been included in
         the  computation of net loss per share because to do so would have been
         antidilutive for the periods presented.

         CASH AND CASH EQUIVALENTS
         The Company  considers  all highly  liquid  investments  with  original
         maturities of three months or less to be cash equivalents.

         REVENUE RECOGNITION
         The  Company   recognizes  revenue  in  accordance  with  the  American
         Institute  of  Certified  Public  Accountants  ("AICPA")  Statement  of
         Position  97-2 on Software  Revenue  Recognition.  Revenue from product
         licensing  is  generally  recognized  after  execution  of a  licensing
         agreement  and shipment of the product,  provided  that no  significant
         vendor  obligations  remain  and the  resulting  receivable  is  deemed
         collectable by management.  Service revenues  consists of data analysis
         using the Company's  proprietary  software performed for customers on a
         project  or  contract  basis  and are  recognized  over the term of the
         respective agreements.  Maintenance revenues consist of ongoing support
         and product  updates and are  recognized  ratably  over the term of the
         contract, generally twelve months.


                                      F-7
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         DEPRECIATION AND AMORTIZATION
         Depreciation  and  amortization  are computed  using the straight  line
         method over the estimated  useful lives of the assets,  generally three
         to five years.  Assets  acquired  under  capital  leases and  leasehold
         improvements  are  amortized  using the  straight-line  method over the
         shorter of the estimated useful lives of the assets or the terms of the
         related leases.

         SOFTWARE DEVELOPMENT COSTS
         Statement of Financial  Accounting Standards No. 86 "Accounting for the
         Costs of Computer  Software to be Sold,  Leased or Otherwise  Marketed"
         ("SFAS 86") requires the capitalization of certain software development
         costs once technological feasibility is established,  which the Company
         defines  as the  completion  of a working  model.  To date,  the period
         between   achieving   technological   feasibility   and   the   general
         availability  of such software has been short and software  development
         costs   qualifying   for   capitalization   have  been   insignificant.
         Accordingly, the Company has expensed all software development costs as
         incurred.

         ADVERTISING
         Advertising costs are included in sales and marketing  expenses and are
         expensed  as  incurred.   To  date  advertising  costs  have  not  been
         significant.

         INCOME TAXES
         The Company  provides for income taxes in accordance  with Statement of
         Financial  Accounting  Standards No. 109, "Accounting for Income Taxes"
         ("SFAS 109").  Income taxes are computed  using the asset and liability
         method.  Under the asset and  liability  method  specified by SFAS 109,
         deferred income tax assets and liabilities are determined  based on the
         differences between the financial reporting and tax bases of assets and
         liabilities and are measured using the currently  enacted tax rates and
         laws.

         USE OF ESTIMATES
         These   consolidated   financial   statements  have  been  prepared  in
         conformity with generally accepted accounting  principles which require
         management to make reasonable estimates and assumptions that affect the
         reported   amounts  of  assets  and   liabilities   and  disclosure  of
         contingencies  at the date of the  consolidated  financial  statements.
         Actual results could differ from those estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS
         The carrying value of cash and cash equivalents,  accounts  receivable,
         accounts  payable and accrued expenses  approximates  fair value due to
         the relatively short term nature of these instruments.

         CONCENTRATIONS OF CREDIT RISK
         Financial   instruments  which  potentially   subject  the  Company  to
         significant  concentrations of credit risk consist principally of cash,
         cash equivalents and accounts  receivable.  The Company places its cash
         with high quality financial institutions.  The Company performs ongoing
         credit   evaluations  of  its  customers  and  generally   requires  no
         collateral.  The Company maintains reserves for potential credit losses
         and historically such losses have not been significant.

         ACCOUNTING FOR STOCK-BASED COMPENSATION
         In October 1995,  the Financial  Accounting  Standards  Board  ("FASB")
         issued Statement of Financial Accounting Standards No. 123, "Accounting
         for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair
         value based method of accounting for  stock-based  compensation  plans.
         The 


                                      F-8
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         Company has chosen to adopt the  disclosure  requirements  of SFAS 123,
         and continue to record  stock-based  compensation  in  accordance  with
         Accounting  Principles  Board  Opinion  No. 25,  "Accounting  for Stock
         Issued to  Employees"  ("APB  25").  Under APB 25, the  Company has not
         recognized compensation expense with respect to such awards because the
         exercise  price of options  granted to employees has  approximated  the
         fair market value of the common stock at the respective grant dates.

2.       LIQUIDITY AND BUSINESS RISKS

         The Company has incurred operating losses since inception, has incurred
         negative cash flows from  operating  activities,  has negative  working
         capital and had an accumulated  deficit of $35,412,456  and $25,866,986
         as of December 31, 1998 and 1997,  respectively.  The Company has had a
         limited  operating  history as a software  product  company and has not
         made  significant  sales  of  its  products,  therefore,  revenues  are
         difficult to predict.  The Company  anticipates  that its cash and cash
         equivalent  balances at December  31, 1998 and  anticipated  cash flows
         from existing  financing  arrangements (Note 7) will be insufficient to
         satisfy its operating cash flow requirements in the foreseeable future.
         Accordingly,  the  Company  will  seek to  sell  additional  equity  or
         convertible debt securities,  however,  there can be no assurances that
         the Company will be successful in raising additional funds. The sale of
         additional  equity  or  convertible  debt  securities  will  result  in
         additional dilution to the Company's stockholders.

3.       SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                                           Year Ended
                                                                                           December 31,
                                                                                     1998              1997
                                                                                     ----------------------

<S>                                                                               <C>              <C>       
              Interest paid during the period                                     $   154,065      $  374,691
              Schedule of non cash investing and financing activities:
                   Capital lease obligations entered into during the period            29,202         561,119
                   Series D Preferred Stock, issued for:
                       Dividends                                                            -         917,571
                   Series D Preferred options issued for consulting services                -         321,470
                   Series A Preferred Stock, issued for:
                       Bridge Financing                                                20,000               -
                   Common stock warrants issued in connection with
                       Bridge Financing                                                     -       1,512,397
                   Common stock options issued for consulting services                145,792         363,800
                   Beneficial conversion feature of Series A and B
                       Convertible Preferred Stock                                  2,251,438               -

</TABLE>

                                      F-9
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


4.       PROPERTY AND EQUIPMENT

         PROPERTY AND EQUIPMENT INCLUDED THE FOLLOWING:

                                                     December 31,
                                                        1998
                                                     ------------

Computer equipment and software                     $  1,779,772
Furniture and fixtures                                   195,799
Office equipment                                          96,602
Leasehold improvements                                    22,348
                                                  ---------------

                                                       2,094,521

Less: accumulated depreciation and amortization        1,134,285
                                                  ---------------

                                                   $     960,236
                                                  ---------------


5.       ACCRUED EXPENSES

         ACCRUED EXPENSES INCLUDED IN THE FOLLOWING:

                                       December 31,
                                            1998
                                       ------------

Executive compensation                $     171,955
Compensation and related benefits           247,632
Consulting and professional fees            168,075
Interest                                     12,086
Commissions                                   9,250
Other                                       186,335
                                     ---------------

                                      $     795,333
                                     ---------------


6.       BORROWING ARRANGEMENTS

         LOAN PAYABLE TO STOCKHOLDER
         In May 1992, the Company entered into a borrowing arrangement whereby a
         stockholder  agreed to advance the Company funds at an interest rate of
         18% per annum.  Such  borrowings were  collateralized  by the Company's
         accounts receivable. In May 1996, the Company was in default of certain
         provisions  of the  agreement,  at which time the  stockholder  and the
         Company  amended  the  agreement  to reduce  the  interest  rate to the
         greater  of prime  plus 3% or 12% per annum and delay the time that the
         stockholder  could  demand  repayment  until  March  1998.  The revised
         agreement  required  the  Company  to set aside  funds in a  restricted
         account to the extent that the outstanding  borrowings  exceeded 80% of
         the  Company's  accounts  receivable  and to make  monthly  payments of
         $10,000,  plus  interest,  until  March  1998.  The  Company  paid  the
         obligation  in full during 1998 with funds in the  restricted  account.
         Interest expense related to this agreement was $64,067 and $114,634 for
         1998 and 1997, respectively.

                                      F-10
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         LOAN RECEIVABLE FROM STOCKHOLDER
         In January 1998,  the Company loaned $65,000 to an officer and director
         of the Company.  This promissory note has a term of 24 months and bears
         interest at 8% per annum.

         INTERIM FINANCING
         In September and October 1998, the Company borrowed a total of $490,000
         from  stockholders of the Company in exchange for unsecured  promissory
         notes (the "Notes Payable"). The Notes Payable bear interest at 12% per
         annum  and are  due at the  earlier  of  March  2000 or the  successful
         consummation of the Series A and Series B Private  Placement.  Upon the
         initial  closing of the  Series A Private  Placement  in October  1998,
         $20,000 of such Notes were  converted  into Series A Units and $170,000
         of such  Notes  were  repaid  through  December  1998.  The  balance of
         $300,000,  outstanding  at  December  31,  1998,  was repaid in full in
         January 1999.

         In May 1997, the Company  received a $500,000 loan with interest at 10%
         per annum, from existing  stockholders.  The loan was repaid out of the
         proceeds of the Bridge Financing, as described below.

         In  June  1997,  the  Company   received   additional  loans  from  two
         stockholders  each  consisting  of a $100,000  promissory  note bearing
         interest of 10% per annum  through  September 30, 1997 and 13% annually
         thereafter  and  attached  warrants to purchase up to 23,850  shares of
         common  stock at $8.56  per  share.  These  notes  were paid out of the
         proceeds of the IPO.

         In July 1997, the Company borrowed $250,000 which was repaid out of the
         proceeds from the Bridge Financing.

         BRIDGE FINANCING
         On July 30, 1997, the Company  completed a $4,300,000  Bridge Financing
         (the "Bridge  Financing").  The gross proceeds to the Company from such
         financing were approximately $3,764,000,  net of approximately $536,000
         of issuance costs.

         In connection with the Bridge  Financing,  the Company issued 43 units,
         each consisting of a $100,000 promissory note (the "Bridge Note") and a
         warrant  (the "Bridge  Warrant")  allowing the holder to purchase up to
         25,000  shares of the  Company's  common  stock at a price of $8.56 per
         share.  The Bridge  Warrants are  exercisable on or after July 30, 1998
         and expire on July 30,  2003.  The Bridge Notes  accrued  interest at a
         rate of 10% per annum from July 30, 1997  through  September  30, 1997,
         and at a rate of 13% per  annum  thereafter,  and were  paid out of the
         proceeds  of the IPO.  As an  incentive  for early  participation,  the
         Company issued to certain  investors,  warrants to purchase up to 6,309
         shares of common  stock at a price of $8.56,  in addition to the Bridge
         Warrants that were included in the bridge units. A portion of the gross
         proceeds from the Bridge Financing was allocated to the Bridge Warrants
         based on their  estimated  fair market value and resulted in $1,512,397
         of original  issue  discount and a  corresponding  amount of additional
         paid in capital.

         In October 1997,  the Company  issued  $600,000 of principal  amount of
         unsecured  promissory  notes to stockholders of the Company.  The notes
         bore interest at 15% per annum and were paid out of the proceeds of the
         IPO.

         On November  25,  1997,  the  Company  repaid the holders of the Bridge
         Notes,  out of the  proceeds of 


                                      F-11
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         the Company's IPO.  Accordingly,  the Company recorded an extraordinary
         loss of $1,629,494  related to the early  extinguishment  of debt.  The
         extraordinary  loss was comprised of $1,193,692  related to unamortized
         deferred  debt  discount  and  $435,802 of  unamortized  deferred  debt
         issuance costs related to the Bridge Notes.

7.       STOCKHOLDERS' EQUITY

         COMMON STOCK
         On November  20, 1997,  the  Company's  IPO of 2,500,000  shares of its
         common stock was declared effective,  which resulted in net proceeds to
         the Company of $12,469,574 before repayment of the Bridge Financing. As
         of the closing date of the offering,  all of the Company's  Convertible
         Preferred Stock and Mandatorily  Redeemable Convertible Preferred Stock
         outstanding  was converted into 331,523 and 1,365,790  shares of common
         stock, respectively.

         At December  31,  1996,  warrants to purchase  56,563  shares of common
         stock were  outstanding,  with  exercise  prices  ranging from $2.40 to
         $22.00  per  share,  and were  immediately  exercisable.  During  1997,
         warrants to purchase a total of 30,000 shares were exercised, resulting
         in net  proceeds  to the  Company  of  $72,000.  The  remainder  of the
         warrants expired upon completion of the Company's IPO.

         During  December 1997, the Company granted an option to a member of its
         Advisory  Committee to purchase up to 200,000  shares of common  stock.
         The  option had an  initial  exercise  price of $6.00 per share and was
         immediately exercisable. In conjunction with the stock option repricing
         discussed  in Note 8,the Board of Directors  approved the  repricing of
         this  option in  November  1998 to $.94.  The  Company  has  recognized
         consulting  expense in its results of  operations  of $272,000  for the
         year ended  December  31, 1997 related to this  option.  No  additional
         consulting expense was recognized in 1998 based on the Company's common
         stock.

         During  1997,  a member of the  Board of  Directors  surrendered  7,386
         shares of the Company's  common stock as repayment of a note receivable
         due to the Company in the amount of $42,000.  Such shares were  retired
         in December 1997.

         PREFERRED STOCK
         In October and November  1998,  the Company had the initial  closing of
         two private  placements.  The Series A Private  Placement  consisted of
         1,750,000  Units (the  "Series A Units")  with a gross  sales  price of
         $3,500,000.  The Series B Private Placement  consisted of 10 Units (the
         "Series B Units") with a gross sales price of $1,000,000. Each Series A
         Unit consisted of one share of Series A Convertible Preferred Stock and
         a  warrant  to  purchase  2.5  shares  of  Common  Stock at a per share
         exercise  price  equal to $.50.  Each  Series B Unit  consisted  of ten
         thousand shares of Series B Convertible Preferred Stock and warrants to
         purchase an aggregate of 125,000  shares of Common Stock at a per share
         exercise  price  equal  to $.50.  The  Series  A Units  were  sold at a
         purchase price of $2.00 per Unit and each Series A share is convertible
         into four  shares of Common  Stock.  The  Series B Units were sold at a
         purchase  price  of  $100,000  per  Unit  and  each  Series  B share is
         convertible into twenty shares of Common Stock. The effective  purchase
         price,  on a common stock  equivalent  basis was $.50 per common share,
         which  represented  a  discount  from  the  fair  market  value  of the
         Company's common stock on the various dates of issuance. As of December
         31,  1998,  1,731,125  and  100,000  shares of  Series A and  Series B,
         respectively,  were issued. All subscriptions receivable as of December
         31, 1998 were received by the Company in January and February 1999.

                                      F-12
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         In  connection  with the Series A and Series B Private  Placements  the
         placement agent was granted an option to purchase  additional  Series A
         and Series B Units equal to 10% of the Series A and Series B Units sold
         and received a commission and  non-accountable  expense allowance equal
         to 5.6% and 9.3%,  respectively,  of the gross proceeds received by the
         Company.

         The following is a description of the securities issued in the Series A
         and Series B Private Placements:

         STATED VALUE
         Each  share of Series A  Preferred  Stock has a stated  value  equal to
         $2.00 and each  share of Series B  Preferred  Stock has a stated  value
         equal to $10.00.

         LIQUIDATION PREFERENCE
         Upon a liquidation,  merger or consolidation of the Company,  where the
         Company is not the surviving entity,  the assets of the Company will be
         available  for  distribution  to the  stockholders,  after  payment  or
         provision for  liabilities  of the Company,  in the following  order of
         priority:  (i) the holders of the Series A and Series B Preferred Stock
         shall rank pari passu with respect to  distributions,  (ii) the holders
         of the Series A and  Series B  Preferred  Stock  shall be  entitled  to
         receive  preference  to any  distribution  to the holders of any Junior
         Securities of the Company, an amount equal to the Series A and Series B
         Stated Value , respectively,  for each share of the Series A and Series
         B Preferred Stock then  outstanding  and (iii) the remaining  assets of
         the Company  available for  distribution,  if any, shall be distributed
         pro rata to the  holders  of issued  and  outstanding  shares of Common
         Stock.

         DIVIDENDS
         The holders of the Series A and Series B  Preferred  Stock shall not be
         entitled to receive any stated dividend payment.

         CONVERSION
         The  holders  of the  Series A and  Series B  Preferred  Stock have the
         right,  at the holder's  option,  to convert each share of Series A and
         Series  B  Preferred   Stock  into  four  shares  and  twenty   shares,
         respectively, of Common Stock.

         The Series A and Series B convertible  Preferred Stock were issued with
         a conversion ratio that represented a discount from the market value at
         the time of issuance.  Accordingly,  the discount  amount is considered
         incremental  yield  (the  "beneficial  conversion  feature"),   to  the
         preferred  stockholders  and  has  been  accounted  for as an  embedded
         dividend to preferred  stockholders.  Based on the conversion  terms of
         the Series A and Series B  convertible  Preferred  Stock,  an  embedded
         dividend of $2,251,438 or $0.44 per share, was added to net loss in the
         calculation of net loss per share in 1998.

         VOTING
         The holders of the Series A and Series B Preferred  Stock are  entitled
         to vote on all matters  submitted for a vote to the stockholders of the
         Company.  The  holders  of a share of Series A and  Series B shares are
         entitled  to vote with  holders  of common  stock,  on an  as-converted
         basis.

         WARRANTS
         Each Series A and Series B Warrant  entitles the  registered  holder to
         purchase 2.5 shares of Common  Stock,  subject to adjustment to protect
         against  dilution,  at a  per  share  exercise  price  equal  to  $.50,

                                      F-13
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         commencing  on the  date of the  initial  closing  of the  Series A and
         Series B shares  Private  Placements,  respectively,  and ending on the
         third anniversary of such closings.  The Series A and Series B Warrants
         may be called for  redemption  by the Company at a redemption  price of
         $.01 per warrant upon not less than 30 days prior written notice if the
         closing  price of the Common  Stock  shall have been at least $1.60 per
         share on 20 trading days during any  30-consecutive  day trading period
         ending not more than three days prior to the date such notice is given.

8.       EMPLOYEE STOCK OPTIONS

         In 1991, the Board of Directors  approved the 1991 Incentive Stock Plan
         (the  "Plan")  which was  subsequently  amended and allows the Board to
         grant either incentive or non-qualified  stock options to the Company's
         employees or consultants.  The options generally expire five years from
         the date of  grant.  Individuals  owning  more  than  10% of the  total
         combined  voting  power of all  classes of stock of the Company are not
         eligible to participate in the Plan unless the option price is at least
         110% of the fair market value of the common stock at the date of grant.

         A summary of the activity under the stock option plan is as follows:

<TABLE>
<CAPTION>
                                                               OPTIONS                      EXERCISE
                                                            AVAILABLE FOR    SHARES UNDER     PRICE
                                                                GRANT           OPTION      PER SHARE
                                                          -------------------------------------------

<S>                                                           <C>             <C>         <C>     
         Options outstanding at January 1, 1997                 136,694        151,800     $    .96

         Additional shares authorized                         1,512,500           --             --
         Granted                                               (791,999)       791,999     .96-6.00
         Exercised                                                 --          (27,070)         .96
         Canceled                                                54,305        (54,305)    .96-6.00
                                                             ----------       ---------    ---------

         Options outstanding at December 31, 1997               911,500        862,424     .96-6.00

         Additional shares authorized                         3,856,000           --
         Granted                                             (3,836,113)     3,836,113     .94-6.00
         Exercised                                                 --          (12,380)        0.96
         Canceled                                               300,121       (300,121)    .96-6.00
                                                             ----------       ---------    ---------

         Options outstanding at December 31, 1998             1,231,508      4,386,036    $.94-6.00
                                                             ----------       ---------    ---------

         Options exercisable at December 31, 1998                             $447,073    $.94-6.00
                                                             ----------       ---------    ---------

</TABLE>

         The Company granted 959,800 and 23,750  non-qualified  stock options to
         consultants and recognized  consulting  expense of $145,792 and $49,470
         related to these options in 1998 and 1997 respectively.

         The Company  accounts for stock options  granted to employees under APB
         25 and has adopted SFAS 123 for disclosure  purposes.  Because  options
         granted to employees  in 1998 and 1997 had exercise  prices equal to or
         greater  than the fair market value of the  underlying  common stock at
         the respective grant dates, as determined by the Company's  management,
         compensation  expense has not been recognized in results of 


                                      F-14
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

         operations.  The pro forma impact of SFAS 123 on the Company's  results
         of  operations  related to  options  granted  during  1998 and 1997 was
         immaterial to the Company's actual results of operations.

         In October  1997,  the Company's  Board of Directors  and  stockholders
         authorized an increase in the number of shares reserved for issuance to
         1,950,000  pursuant to the Plan. In November 1998, the Company's  Board
         of Directors  approved an  additional  increase in the number of shares
         reserved  for  issuance  to   5,806,000.   This   increase  is  pending
         stockholder approval.  The Board of Directors also approved a repricing
         of 1,168,186 options  previously  granted pursuant to the Plan to a per
         share  exercise price of $.94, the fair market value on the date of the
         repricing.  The repriced options, which had original exercise prices of
         between $.96 and $6.00 per share,  will have the same vesting  terms as
         the original option grants. All options issued during November 1998 and
         thereafter  will  have a term of seven  years  from the date of  grant.
         Options  issued to  employees  will vest over a  three-year  period and
         options issued to non-employees will vest over two years.

9.       MAJOR CUSTOMERS

         Sales to major customers, as a percentage of revenues, are as follows:

                                             Year Ended          Year Ended
                                             December 31,        December 31,
                                                1998                1997
                                             ------------        ------------

         A                                       32%                  -
         B                                       24%                  -
         C                                       10%                  -
         D                                       14%                  65%

         At December  31,  1998,  customers C and D  represented  33% and 40% of
         total accounts receivable, respectively.

         International sales for the year ended December 31, 1998 were $157,500,
         or 17% of total revenues.  International sales were not material during
         1997.

10.      EMPLOYEE BENEFITS PLANS

         The Company has a 401(k) savings plan (the "Savings Plan") covering all
         full-time  employees and  qualifying  part time  employees.  As allowed
         under Section  401(k) of the Internal  Revenue  Code,  the Savings Plan
         provides   tax-deferred   salary  reductions  for  eligible  employees.
         Employees  are  eligible  to  participate  after a  ninety-day  service
         requirement.  Participants  may  make  voluntary  contributions  to the
         Savings Plan up to 20% of their compensation, subject to annual limits.
         The Savings Plan permits company contributions, however, none were made
         during the years ended December 31, 1998 and 1997.


                                      F-15
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

11.      OBLIGATIONS UNDER CAPITAL AND OPERATING LEASES

         The Company is obligated  under capital leases for computers and office
         equipment  through  the  year  2001.  All  assets  leased  under  these
         agreements  have  been  capitalized  and the  related  obligations  are
         reflected in the accompanying  consolidated  financial statements based
         upon the present value of future minimum lease  payments.  In addition,
         the Company  leases its office  facilities  and certain  furniture  and
         equipment.  These  operating  leases are  noncancellable  and expire on
         various dates through 2004.

         The future minimum lease payments under capital and operating leases at
         December  31,  1998  and the  present  value of the net  minimum  lease
         payments are as follows:

                                                        Operating      Capital
         Year Ending December 31,                        Leases        Leases
                                                      --------------------------
         
         1999                                         $  461,563      $  207,303
         2000                                            355,191         170,842
         2001                                            363,534          10,001
         2002                                            389,905            --
         2003 and thereafter                             378,950            --
                                                      ----------      ----------

         Total minimum lease payments                 $1,949,143         388,146
                                                      ----------      ----------

         Less: amounts related to interest                                40,851
                                                                      ----------

         Present value of net minimum lease payments                     347,295
         Less: obligation due within one year                            175,809
                                                                      ----------

         Long-term obligation under capital leases                    $  171,486
                                                                      ----------

         During  1997  and  1998,  the  Company   refinanced  certain  equipment
         purchased during 1997 and 1996, under a sale/leaseback agreement. These
         transactions  were  accounted for as  financings,  wherein the property
         remained  on the  books  and  continues  to be  depreciated.  Financing
         obligations  representing  the proceeds  were  recorded and are reduced
         based upon payments under the lease over a 42 month period.

         In November 1996, the Company  entered into a $500,000  equipment lease
         line of credit. In December 1997, this agreement was amended to provide
         the  Company  with an  additional  $250,000  line of credit  under this
         facility,  with a three year  repayment  term.  As of December 31, 1998
         this line of credit had expired.

         Rental expense under operating leases was $445,755 and $453,794 for the
         years ended December 31, 1998 and 1997, respectively.

                                      F-16
<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

12.      INCOME TAXES

         The tax effect of temporary  differences  and  carryforwards  that give
         rise to significant portions of the deferred tax assets and liabilities
         at December 31, 1998 was:

                                                                       1998
                                                                  ------------

                  Deferred rent                                   $    107,932
                  Accounts payable                                     196,577
                  Accrued expenses                                     318,133
                  Deferred revenues                                     33,916
                  Software cost expense                                268,804
                  Net operating loss carryforward                   11,862,015
                  Research and experimental credit carryforwards       207,515
                  Other payable                                        120,000
                  Other deferred tax assets                            450,184
                                                                  ------------

                       Deferred tax assets                          13,565,076

                  Depreciation                                        (245,080)
                  Accounts receivable                                 (110,611)
                  Prepaid expenses                                     (15,100)
                                                                  ------------

                       Deferred tax liabilities                       (370,791)

                  Net deferred tax assets                           13,194,285
                       Less: valuation allowance                   (13,194,285)
                                                                  ------------

                  Net deferred tax assets                         $       --
                                                                  ------------

         The Company has  recorded a full  valuation  allowance  against its net
         deferred  tax  assets  since  management  believes  that based upon the
         available  objective  evidence  it is more  likely  than not that these
         assets will not be  realized.  The  difference  between  the  statutory
         federal tax rate and the Company's  effective tax rate is primarily due
         to the valuation allowance.

         As of  December  31,  1998,  the  Company  has net  operating  loss and
         research and  experimental  tax credit  carryforwards  of approximately
         $29,660,000  and  $207,000,  respectively,  available to offset  future
         federal  taxable  income and tax.  These  carryforwards  will expire at
         various dates beginning in 2007 through 2018.  Under Section 382 of the
         Internal  Revenue Code of 1986,  as amended,  utilization  of prior net
         operating  losses  ("NOLs") is limited  after an ownership  change,  as
         defined in such Section 382. As a result of previous transactions which
         involved an  ownership  change as defined by Section  382,  the Company
         will be  subject  to  limitation  on the use of its NOLs.  Accordingly,
         there can be no  assurance  that a  significant  amount of the existing
         NOLs will be available to the Company.

                                      F-17

<PAGE>
QUERYOBJECT SYSTEMS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------

13.      COMMITMENTS

         EMPLOYMENT AGREEMENTS
         The Company has  entered  into  long-term  employment  agreements  with
         certain key members of management. The agreements provide each employee
         with base annual compensation and incentive  compensation  payable upon
         attaining  certain  corporate  targets  as  determined  by the Board of
         Directors. The agreements provide that in the event of the termination,
         other than for cause,  the  executives  will be entitled to between six
         and twelve months of severance.  The aggregate annual commitments under
         these  employment  agreements  are  $262,292  and $0 for 1999 and 2000,
         respectively.

         In March  1998,  the former  Chairman  of the Board and  officer of the
         Company tendered his resignation effective May 26, 1998. In conjunction
         with the  resignation  the  Company  agreed to  provide  twelve  months
         severance which will be paid over the period of one year.

<PAGE>